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How to Calculate CPI: A Step-by-step Process
Measuring the changes in the pricing of goods helps evaluate the cost of living as well as the purchasing power of an economy. Knowing this information enables an individual to price the items affordably and reasonably.
In this guide, we will discuss the CPI formula and how to calculate CPI. This will enable consumers to track the continuously changing prices of products and services.
What Is CPI?
What Is the Formula to Calculate CPI?
In order to find CPI, one should know the CPI formula. The consumer price index calculates the average price change customers usually spend on a certain basket of products and services over a specific time. By doing this calculation, financial professionals determine inflation. The mathematical formula to calculate the consumer price index goes as follows:
Consumer price index (CPI)= Total price of goods and services in current time period/ total cost of goods and services in previous time period * 100
How to Calculate the Consumer Price Index?
One can follow these steps to calculate the consumer price index:
Step 1: Gather Costs for Common Goods and Services in the Past
Search for the prices of specific goods from previous years online. Also, gather information from documents, invoices and receipts for purchases made in the past. Further, ensure that these documents have the dates specified.
Step 2: Gather Costs for Current Goods and Services
Just like gathering all the prices for goods and services from previous years, do the same for the current year. Look for goods prices from the same brand or retailer for a more accurate comparison.
Step 3: Sum Up All the Prices Together
Add the prices of all past products and note down the figure. Similarly, add the prices of all products purchased in the present year.
Step 4: Divide the Total Present Product Price by the Total Past Product Price
After noting down the summation of all the product prices from the past and current year, divide the total current price by the past product price.
Step 5: Multiply the result by 100
After getting the result from the last step, multiply it by 100 to get the consumer price index.
What Are the Examples of Calculating CPI?
Let us understand how to calculate CPI using an example. The table below shows the change in a basket of goods in the year 2023 with respect to that in the year 2012:
| Item | Quantity | Price in 2012 | Price in 2023 |
| Maize | 100 | ₹ 1,200 | ₹ 1,600 |
| Corn | 50 | ₹ 1,360 | ₹ 1,680 |
| Bread | 50 | ₹ 800 | ₹ 800 |
| Wheat | 150 | ₹ 560 | ₹ 960 |
Total costs of the basket in 2012= ₹ (100*1200+ 50*1360+ 50*800+ 150*560) = ₹ 3,12,000
Total costs of the basket in 2021= ₹ (100*1,600+ 50*1,680+ 50*800+ 1500*960)= ₹ 4,28,000
Hence, consumer price index= 4,28,000/ 3,12,000 * 100= 137.18 (approx.)
FAQs About How to Calculate CPI
What is the need for calculating CPI?
Who is responsible for calculating CPI in our country?
What is the present-day CPI in India?
What are the types of CPI in India?
There are four types of CPI in India. These are as follows:
- CPI for Industrial Worker
- CPI for Rural Labourer
- CPI for Agricultural Labourer
- CPI (Urban/ Rural/ Combined)
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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