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.
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:
|Price in 2012
|Price in 2023
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
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.
As per a report, the CPI dropped to a one-year low of 5.72% in December 2022.
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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