Consumer Price Index (CPI) and Inflation Rate Calculator
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Understanding CPI and Inflation Rate
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in a predetermined basket of goods and averaging them. Changes in the CPI are used to measure inflation, which is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
How to Calculate the CPI:
The formula for calculating the CPI is:
CPI = (Cost of Basket in Current Year / Cost of Basket in Base Year) * 100
The base year is a reference point, typically assigned an index value of 100. The CPI for other years is then calculated relative to this base year.
How to Calculate the Inflation Rate:
The inflation rate measures the percentage change in the CPI over a specific period, usually one year.
The formula for calculating the inflation rate is:
Inflation Rate = ((CPI in Current Period – CPI in Previous Period) / CPI in Previous Period) * 100
In this calculator, we are simplifying the inflation calculation by using the base year CPI as the "previous period" for illustrative purposes, to show the cumulative inflation from the base year to the current year.
Example:
Let's say the cost of a basket of goods in the base year (e.g., 2020) was $100.00. By the current year (e.g., 2023), the cost of the exact same basket of goods has risen to $115.50.
CPI Calculation:
CPI = ($115.50 / $100.00) * 100 = 115.50
This means that prices, on average, have increased by 15.50% since the base year.
Inflation Rate Calculation (from base year):
Inflation Rate = ((115.50 – 100) / 100) * 100 = 15.50%
This indicates an overall inflation of 15.50% from the base year to the current year.