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Generate the current Consumer Price Index:
The first step is to know the current CPI of a particular item or a basket of items. The Bureau of Labor Statistics (BLS) conducts a survey of prices of the items every month and calculates the CPI. A base year is chosen by the BLS and a corresponding index is set against the base year. Currently the base year is 1984. For example, if the cost of one item was $1.00 with an index at 100 published by BLS in 1984, the index of the same item would stand at 175 at a cost of $1.75.
Calculation of increase and decrease in prices:
To know whether there has been an increase or decrease in price one has to subtract the index of the base year with the index of the current year. With the above example, the base index is 100 and current year’s index is 175. Deducting 100 from 175 will give us 75. This indicates that there has been an increase of 75 points since 1984.
Calculation of the current inflation rate:
Every urban consumer wants to know the increase in prices since last year. The best method is to deduct the last year’s index from the current year’s index and divide the result with the last year’s index number while multiplying the result by 100. Let us assume that the current consumer price index was 168 and the current year’s price index is 175. Hence, the calculation would be:
((175-168)/168)*100
Or
0.0416*100
This equals 4.16% inflation over the assumed previous year.
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