Computing the Consumer Price Index
To figure the CPI, a formula is used. That formula is:
CPI = cost of products of current year
cost of products in a base year
Take the answer from this division problem and then multiply it by 100 to calculate the CPI. For example, in 1994 the market basket was $335. The market basket for the base year (1982) was $245. Dividing these amounts gives us 1.367. 1.367 multiplied by 100 gives us 136.7 for a CPI index figure.
Calculating for the Annual Rate of Inflation
There is a formula used to calculate the annual rate of inflation (ARI ) It is:
ARI = CPI in given year – CPI in previous year
CPI in previous year
As with the CPI, once the division is done then we need to multiply our answer by 100. For example, in 1993 the CPI was 144.5, while in 1992 it was 140.3 Thus the rate of inflation is:
144.5 – 140.3
Again, after the division then we multiply by 100. Thus, we find the inflation rate to be 3.0%.