Content

• To step
• Part 1 of 2: Gathering the necessary data related to inflation
• Part 2 of 2: Calculating inflation
• Tips
• Necessities

Inflation is an indispensable concept in the economy. Inflation represents the increase in the price of consumer goods over a period of time. You can also use inflation to calculate deflation, or a decrease in prices. To calculate inflation you need the Consumer Price Index or historical price data and a formula. You can use that formula to calculate inflation for just about any period in history.

To step

Part 1 of 2: Gathering the necessary data related to inflation

1. Look up the average prices of a number of different products over a period of a few years. Inflation is calculated by calculating the prices of standard goods over time - standard goods can be things like brown bread or a liter of milk. You will either be presented with this information in your problem statement ("In 1962, milk cost 1.00 guilders per liter ..."), or you can look up the real prices on the CBS website.
   • The more data you have, the better. If you are offered sample prices for a practical issue, you must calculate and use the average of all those prices - so do not simply choose one price for the comparison.
   • The CPI is calculated each year on the basis of the average price of a large number of goods and is therefore much more effective than the price of a single good.
2. Go to the Consumer Price Index. This is a list of the monthly and annual changes in inflation based on the averages listed above. When the CPI is higher than that of the current month, it means that there has been inflation. When the CPI is lower, it is deflation.
   • For information about current inflation, you can also go directly to the CBS website.
   • Inflation is calculated using the same formula in every country. Use the same currency for all digits in your calculation.
3. Choose the period for which you want to calculate inflation. You can take months, years or periods of ten years, as long as you make it clear in your answer what period you are talking about. Do not forget to mention the period for which you are calculating the inflation.
   • You always calculate inflation over a certain period. There is no such thing as "general inflation". Remember that inflation is the value of money: the amount of money you need at any given time to buy a particular commodity compared to the amount of money you need during another period. To calculate inflation you have to compare the price at that time with the price during a certain other period.
4. Look up the price of the product that is the subject of your study, or the number of the Consumer Price Index for the previous date you have chosen. Find the figure of the CPI for your previous date, or take the average of the prices of the good for which you want to perform the calculation.
5. Look up the price of the product, or the number that the Consumer Price Index indicates for the later date you chose. Then check what the data is regarding the current price of the object (you can calculate or look it up). If you are doing historical research (such as calculating inflation before and after World War II), it can help to collect data from two or three different years so that you can explain peaks in inflation for each individual year that could affect the general trends in the economy you are studying.

Part 2 of 2: Calculating inflation

1. Know the formula to use to calculate inflation. It is a very simple formula. At the "top" is the difference in the CPI (inflation), and at the bottom it is determined which part of the total inflation reflects that difference. Then multiply this answer by 100 to make it an easy-to-read percentage:
   • ${ displaystyle { frac {CurrentCPI-HistoricalCPI} {CurrentCPI}} * 100}$Enter the data in the formula. For example, imagine that we are calculating inflation based on the price of a loaf between 2010 and 2012. For example, imagine that the price of a loaf in 2012 was $ 3.67 (€ 3.48) while so ' The same loaf in 2010 cost $ 3.25 (€ 3.10).
     • ${ displaystyle { frac { $ 3.67 - $ 3.25} { $. 67}} * 100}$Simplify the calculation as follows: First calculate the difference in price and then divide it. Then multiply the result by 100 to calculate the percentage.
       • ${ displaystyle { frac { $ 3.67 - $ 3.25} { $ 3.67}} * 100}$Compare your answer with the outcome you get from the inflation calculator on this website, with which you can calculate inflation in the Netherlands over a period of your choice. If you want to calculate the exact numbers that apply to the real world, go straight to the source. The calculator simply asks you to enter an amount and the years you want to compare, then returns inflation.
       • Make sure you understand how to read inflation. The inflation you have just calculated means that, based on the current value of the euro, your money is worth about 12.9% less than in 2010. In other words, most products now cost an average of 12.9% more than in 2010 (NB This is an example, these are not real data). If you were given a negative number as the answer, it would be deflation, which means that a shortage of cash will make your money worth more over time, rather than less. Now apply the formula in exactly the same way as in the case of a positive number.
       • Indicate the period for inflation. Calculating inflation is only meaningful if the calculation applies to a specific period. Make sure that all studies, news reports or problems explain the correct period.

Tips

• You can use the inflation calculator on the website of the Central Bureau of Statistics (CBS) to calculate inflation in the Netherlands between different years: http://www.cbs.nl/nl-NL/menu/themas/prijs /digits/extra/pci.htm; Enter an amount and the number of years you want to include in your calculation.

Necessities

• Paper
• A pencil
• A calculator
• The Consumer Price Index