How to Calculate Consumer Price Index with the CPI Equation

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A simple guide on how to measure the cost of living and inflation
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The Consumer Price Index (CPI) is a measure of changes in product costs over a specific time period. CPI is used as both an indicator of the cost of living and economic growth. CPI tends to pop up in the news whenever inflation (a decrease in the purchasing power of money) starts to get out of hand because CPI is the most consistent way to measure how much people need to spend at the grocery store or gas pump. Here, we’ll break down what CPI is, why it’s important, and how you can calculate CPI for yourself.

How to Find CPI

  1. Collect the prices for goods and services last month (or year).
  2. Gather those same prices but for this month (or year).
  3. Divide the costs now by the costs from the past.
  4. Multiply the result by 100 to get the CPI.
  5. Convert this number into a percentage (optional).
Section 1 of 7:

What is the CPI formula?

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  1. The CPI formula is relatively straightforward. Simply divide the cost of goods and services now by the cost of goods and services in the previous period. Multiply this number by 100 and you’ve got the CPI. [1]
    • What time periods do you use? You can use literally any time period you’d like if you’re calculating your own CPI numbers. The U.S. Bureau of Labor Statistics (BLS), the department that measures CPI in the United States, uses a monthly time frame. Many economists will look at yearly CPI changes when assessing larger trends.
      • For example, the BLS might use the following formula to find the CPI in March of 2025: cost of goods in March 2025 divided by cost of goods in February 2025 x 100 = CPI.
    • Which goods and services are measured? Nearly all consumer goods are measured. The BLS divides these goods into 8 groups which are tracked independently: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.
      • Things not covered by CPI include stocks, bonds, property, insurance, and utilities.
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Section 2 of 7:

Calculating CPI Example

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  1. Grocery receipts from the past year would work well for this purpose. For accurate calculations, use a sampling of prices based on a relatively brief period of time--perhaps just one or two months of the previous year. [2]
    • If you are using old receipts, make sure that they have the date on them. Simply knowing that the prices listed are not current does not illustrate any real point. The change in CPI is only relevant if calculated for a specifically quantifiable amount of time.
  2. Using the record of past prices, add together a sampling of those product prices. [3]
    • Normally, the CPI is restricted to some of the most commonly used consumer items--foods such as milk and eggs, and others such as laundry detergent and shampoo.
    • If you are using a record of your own purchases and are trying to determine the general trend in prices and not merely the change of a single item, you may want to exclude those items that are only occasional purchases.
  3. Again, receipts would function well for this purpose. You can also just call a local store or look the prices up online. [4]
    • If you are using a relatively small sample of items, you may be able to find the prices in flyers sent out by retail stores.
    • It may be useful, for the sake of comparison, to make sure the prices used are based upon the same brands and from the same retailer. Because of the price differences at each store and from brand to brand, the only way to track the change of prices over time is to minimize these variables.
  4. You must use an identical list of items as you used when you added the prices of past items together. For example, if one loaf of bread was in your first list, one loaf of bread must be part of the list of current prices. [5]
  5. For example, if the total of current prices amounted to $90 and the old prices equaled $80, the result is 1.125 (represented mathematically, 90÷80=1.125).
  6. The baseline for the CPI is 100--that is, the initial reference point, when compared to itself, equals 100%-- and so make your figure comparable.
    • Think of the CPI as a percentage. Past prices represent a baseline, and that baseline is described as 100% of itself.
    • Using the previous example, current prices would be 112.5% of the previous prices.
  7. By doing this, you are subtracting the baseline--represented by the number 100--to determine the change over time.
    • Again, using the above example, the result would be 12.5, representing a 12.5% change in prices from the first period to the second.
    • Positive results represent the rate of inflation; negative numbers reflect deflation (a rare fairly rare phenomenon in most of the world since the mid-twentieth century).
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Section 3 of 7:

CPI Example for a Single Item

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  1. Try to find something that you have an exact number for, and that you have recently purchased as well. [6]
    • Don’t use anything you bought on sale.
  2. It is best to compare the prices of the same brand of item that was purchased as the same store. Again, the purpose of CPI is not to determine how much you are saving by shopping at a different store or switching to generic brands. [7]
    • Again, avoid using anything that’s on sale. The goal here is to compare apples to apples (well…full price apples to full price apples, to be specific).
  3. So, if a box of cereal once cost $2.50 but now costs $2.75, the result should be 1.1 (represented mathematically, 2.75÷2.5=1.1). [8]
  4. Again, because the baseline for the CPI is 100--that is, the initial reference point, when compared to itself, equals 100%-- make your figure comparable. [9]
    • Using the example, the CPI would be 110.
  5. In the case of the example, 110 minus 100 equals 10. That means that the price of the particular item examined has increased by 10% over time.
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Section 4 of 7:

Why is CPI important?

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  1. Inflation refers to the general increase in the price of goods and services over time. [10] It’s why a gallon of milk cost $1.30 in 1970 but $4.10 in 2024. There are a lot of ways to track inflation, but the Federal Government and the Federal Reserve (which sets interest rates) pay the most attention to CPI, which makes it uniquely important. [11]
    • How do interest rates impact inflation? The higher interest rates are, the less likely you are to spend money (it costs more to borrow money for things like a mortgage or vacation, and you get rewarded more for saving money at the bank when interest rates are high). If consumers spend less money, inflation can go down as there are fewer buyers pushing prices up. [12]
    • Is inflation bad? No, not necessarily. In fact, deflation—where goods and services lose value over time—is much, much worse. Inflation isn’t necessarily a problem if people can still afford goods, but an excessive amount of inflation can be painful for consumers. [13]
Section 5 of 7:

Who calculates CPI?

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  1. Every month, the BLS goes out to collect information on the monthly CPI report. This is just one of the many data sets the BLS measures. They also collect info on employment, wages, and other key economic factors. Basically, the BLS tracks how the US economy is doing every month. [14]
    • How is data collected for CPI? The BLS collects data primarily by sending agents into the field to record prices firsthand. They go to grocery stores, general stores, gas stations, etc. They also look at online prices and place phone calls to collect data remotely.
    • You can calculate historical CPI data here ! The BLS has a calculator that you can use to check historical inflation data. It won’t give you a pure CPI result in percentage form, but it will demonstrate how much the value of money has changed!
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Section 6 of 7:

Is CPI the inflation rate?

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  1. CPI is often called the “cost of living” index because it shows you how much everyday goods cost over time. It doesn’t actually tell you how fast or slow the cost of things is changing, though. For that, you need the inflation rate. The formula for inflation rate is as follows: Inflation Rate = ((Current CPI - Previous CPI) / Previous CPI) x 100 . [15]
    • What is a “healthy” rate of inflation? The world’s central banks have generally agreed upon 2% being a good yearly rate of inflation. So, in a perfect world, $100 would have the spending power of $98 after a year. [16]
Section 7 of 7:

What is the PPI?

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  1. Alongside CPI, PPI is probably the most important inflation measurement collected by the BLS. PPI looks exclusively at prices that businesses pay to import the goods they need to do business. This is an important measurement because it indicates where inflation is happening. If CPI is high but PPI is not, it means businesses are raising prices. If PPI is higher than CPI though, it just means businesses are passing on increased costs to consumers. [17]
    • As an example, CPI might measure the cost to buy a toy truck. However, PPI will measure the cost of all the plastic or metal imported by the toy company to make that truck. 0
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  • Question
    How do I calculate a year percentage?
    Donagan
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    Use the method shown above to compare prices from a given year with the analogous prices from the previous year.
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  • Question
    What is the equation used to calculate CPI?
    Community Answer
    CPI equation: (current price in X yr / base price in X yr) x 100
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  • Question
    What does the CPI indicate?
    Community Answer
    CPI shows the change in price for something over time. 100 is the base index.
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      References

      1. ↑ https://www.bls.gov/cpi/questions-and-answers.htm
      2. ↑ https://www.uvm.edu/~awoolf/classes/spring2005/ec11/calculating_inflation.html
      3. ↑ https://www.uvm.edu/~awoolf/classes/spring2005/ec11/calculating_inflation.html
      4. ↑ https://www.uvm.edu/~awoolf/classes/spring2005/ec11/calculating_inflation.html
      5. ↑ https://www.uvm.edu/~awoolf/classes/spring2005/ec11/calculating_inflation.html
      6. ↑ https://marketbusinessnews.com/financial-glossary/consumer-price-index-cpi/
      7. ↑ https://marketbusinessnews.com/financial-glossary/consumer-price-index-cpi/
      8. ↑ https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/economic-iondicators-and-the-business-cycle/price-indices-and-inflation/a/lesson-summary-price-indices-and-inflation
      9. ↑ https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/economic-iondicators-and-the-business-cycle/price-indices-and-inflation/a/lesson-summary-price-indices-and-inflation
      1. ↑ https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Inflation
      2. ↑ https://webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=92&topicid=6&subtopicid=116
      3. ↑ https://www.bankofcanada.ca/2023/12/how-higher-interest-rates-affect-inflation/
      4. ↑ https://www.cnn.com/2021/12/01/economy/inflation-good-bad-winners-losers/index.html
      5. ↑ https://www.bls.gov/cpi/questions-and-answers.htm
      6. ↑ https://dof.ca.gov/wp-content/uploads/sites/352/Forecasting/Economics/Documents/How-To-Use-CPI-Data.pdf
      7. ↑ https://www.federalreserve.gov/faqs/economy_14400.htm
      8. ↑ https://www.bls.gov/ppi/

      About This Article

      Article Summary X

      To calculate CPI, or Consumer Price Index, add together a sampling of product prices from a previous year. Then, add together the current prices of the same products. Divide the total of current prices by the old prices, then multiply the result by 100. Finally, to find the percent change in CPI, subtract 100. If the answer is positive, it’s the rate of inflation; if it’s negative, it’s the rate of deflation. If you want to learn how to calculate the CPI for a single item, keep reading the article!

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