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.

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

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.