The CPI or Consumer Price Index is a record of the decrease and increase of products and services related to the economy. Generally, it involves the increase and decrease of a certain product or service's economic status. The CPI keeps track of the decrease and increase of prices of, say, rice and other grain-made products such as bread, pastries, cakes and the like. It also keeps track of other products and services such as, but not limited to, food prices, beverage prices, medical service and pharmaceutical product prices, education costs, and all other products that people regularly avail of. The CPI does not keep track of investments and stocks. The CPI only keeps track of products and services that people "can't live without" like food and medicines. There is a CPI for the whole U.S., while there is also CPI that only applies per state.
Below are the steps for calculating CPI. For a guide on the numbers that you will need below, the Bureau of Labor statistics has a chart of numbers available in their website.
- Find the first number. You will need the number from the first year you want to determine the CPI of a product or service. The first number is the starting year of the period when you want to calculate the CPI. For instance, if you want to calculate the CPI of bread between the years 2008 and 2009, 2008 will be your first year. You will need the CPI of food and beverages in the year 2008. The CPI of bread in the year 2008 is your first number.
- You also need the second number. The second number is the last year of the period when you want to calculate the CPI. Just like in the example above, calculating the CPI of bread between the years 2008-2009, the year 2009 is your last year. The CPI of food and beverages in the year 2009 is your second number.
- Subtract the two numbers. Subtract the second number from the first number. In the example above, if the CPI of the year 2009 is 218.249, and the CPI of 2008 is 210.832, then the formula is 218.249-210.832. This is equal to 7.417.
- Move the decimal. Moving the decimal point will make the number a percentage. Since we got 7.417 from the calculation above, we move the decimal between 7 and 4 two times to the right. It will now read 1.7%. This percentage is the inflation rate. If the number in this equation turns up negative, it is a deflation rate instead of an inflation rate.
Following the steps listed above and calculating a product or service's CPI will give you a good idea of how much people spent on a certain product or service within the period when you calculated the CPI. You can make sure that the product or service you want to determine the CPI of is in the list of Consumer Product Index. The Bureau of Labor Statistics has a website where you can check the CPI of all the covered products and services of the CPI.