How to Calculate CPI: A Step-by-step Process

how to calculate cpi

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?

The Consumer Price Index, abbreviated as CPI, tracks the continuous change in the prices of goods and services. This includes almost different goods and services, such as medical care, transportation, food and other items. Many people use this index to assess the economic growth and cost of living in specific areas. Further, CPI is used by professionals in the financial sector to determine the inflation and deflation in an economy.

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?

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One can calculate CPI or consumer price index to determine the cost of living for a specific area. Further, it also helps assess an inflation and deflation scenario in an economy.

Who is responsible for calculating CPI in our country?

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The MoSPI (Ministry of Statistics and Programme Implementation) and PSD (Price Statistics Division) of the NSO (National Statistical Office) is responsible for calculating CPI for urban, rural and other sectors on a monthly basis.

What is the present-day CPI in India?

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As per a report, the CPI dropped to a one-year low of 5.72% in December 2022.

What are the types of CPI in India?

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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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