The Consumer Price Index, or CPI, is frequently discussed on the news, but how the CPI is calculated is not usually discussed. Formulas exist for calculating the CPI of individual items, as well as the CPI of multiple items.The CPI is a measure of the change in price of consumer goods and services that are purchased by households. It is defined by the Bureau of Labor Statistics as a "measure of
. the average change over time in the prices paid by urban consumers for a market basket of goods and services." The annual percentage change in the CPI is used s a measure of inflation.To calculate the CPI of an individual item, the formula is a ratio. It is CPI1/CPI2=Price2/Price1. This formula is also expressed as: CPI=Updated cost/Base period cost x 100. For example, if a gallon of gas cost 99 cents in the current year and 50 cents in the base period year, the math is CPI=99/50x100, so CPI=198 and gas has experienced 198 percent inflation.The CPI of a groups of items is more difficult to compute because each individual item receives a certain weight. Different weights are given to housing costs, food and beverage purchases, transportation, medical care, entertainment and apparel. Taxes are not included in the calculation individually, but certain taxes, such as sales taxes, are included along with the items they are attached to. Each month, Bureau of Labor Statistics employees visit or call thousands of stores and offices to calculate the CPI based on the prices of over 80,000 items.Calculating the CPI for a basket of goods is complex, but it is easy to compute the CPI and inflation of an individual good. Simply divide the new price by the old price and multiply by 100 to find the CPI of a specific item. More reference links: http://www.bls.gov/cpi/cpifaq.htm http://data.bls.gov/cgi-bin/cpicalc.pl
