How to Use CPI to Measure Inflation

CPI measures prices of consumer goods and services. CPI, as other indexes, measures price changes by comparing the price to a price in a base year. In many cases, the Bureau of Labor Statistics uses 1982-84 as their base index period. This means that all prices at this time are considered to be "100". When comparing prices in of a future period, you must compare the prices to that base period and calculate the index. For example, if prices double from the base year, the index would be 200. This is calculated by:

index = current price / base price * 100.

for example

index = $6.00 / $3.00 * 100 = 200

In order to make use of the CPI study, you will need to understand how to use an index to determine the percentage change of a particular item, when using CPI, a good or service. Below is an example of how to calculate the change in two index figures:

CPI for current period - 136.0

Less: CPI for previous period - 129.9

Equals index point change - 6.1

Divided by previous period CPI - 129.9

Equals - 0.047

Result multiplied by 100 - 0.047 x 100

Equals percent change - 4.7%