The Consumer Price Index (CPI) is a measure of changes in product prices over a specific period of time. It is used as both a cost of living indicator and an indicator of economic growth. The CPI is calculated based on aggregated data on the price of common consumer items in certain urban districts. This article will teach you how to calculate CPI.
Method 1 of 2: Making a Simple CPI Calculation
Step 1. Find an old price record
Grocery receipts from a year earlier serve this purpose well. For more accurate calculations, base prices on a relatively short period of time, perhaps just a month or two from the previous year.
If you are using old receipts, make sure they come with a date. Just knowing that the prices shown there are not recent will not help at all, as the CPI calculation is only relevant if done over a defined period of time
Step 2. Add up the prices of items purchased in the past
With the help of an old price register, add up the prices of the desired products.
- Typically, the CPI will be restricted to just common consumables, including foods such as milk and eggs and cleaning products such as detergents and shampoos.
- If you're using a record from your own accounts to determine price variation in general rather than specific items, you might want to exclude items that are only occasionally purchased from the calculation.
Step 3. Find a record of current prices
Again, grocery receipts are for this.
- If you have a small sample of items, look for supermarket flyers to enlarge the sample.
- It can be useful, for comparison purposes, to make sure that the prices being compared are from the same brands and were purchased at the same store. As there are considerable differences between stores and between brands, the only way to have reliable results is to reduce this variation.
Step 4. Add the price of current items
You must use a list of items identical to the list of old items. For example, if a bread pack was on the first list, it must also be on the current list.
Step 5. Divide the price of current items by the price of old ones
For example, if the total of current prices is 90 reais and that of old prices is 80, the result is 1.125 (90 ÷ 80 = 1,125).
Step 6. Multiply the result by 100
To obtain the value of the CPI, we must multiply the value obtained by 100 to have a percentage comparison against the original price.
- View the CPI as a percentage. The old prices represent the benchmark, which is described as 100% of itself.
- Using the previous example, the current prices represent 112.5% of the old prices.
Step 7. Subtract 100 from the new result to find the CPI value
When you do this, you will be subtracting the frame, represented by the number 100, to determine the change that has taken place over time.
- Using the above example again, the result would be 12, 5, which means that prices increased by 12, 5% from the first period to the second.
- Positive results represent inflation, while negative results represent deflation (which has been a rare phenomenon in most parts of the world since the mid-20th century).
Method 2 of 2: Calculating Price Changes for a Single Item
Step 1. Find the price of the specific item you purchased in the past
Try to find something that you have an exact price from the past and that you recently purchased again.
Step 2. Find the current price of the same item
It is better to compare the same brand of item at the same store, as the purpose of the CPI is not to determine if you are saving by shopping at a different store or brand.
Also avoid comparing items that are on sale. The official CPI is calculated by the government with the help of IBGE using several items in different places to eliminate short-term variations. Calculating it for specific items is still valid, but promotions should not be considered
Step 3. Divide the current price by the old price
So if a box of cereal used to cost 5 reais and now it costs 5, 50, the result should be 1.1 (5.00 ÷ 5, 50 = 1.1).
Step 4. Multiply the result by 100
Again, to calculate the CPI, we must multiply the value obtained in the division by 100 to create a benchmark against the old price.
Using the example, the CPI would be 110
Step 5. Subtract 100 from it to get the price change
In this case, 110 - 100 equals 10, which means that the price of that particular item has increased by 10% over the period.