Content

• Steps
• Method 1 of 2: Finding the Information You Need to Calculate Inflation
• Method 2 of 2: Calculating inflation
• Tips
• What do you need

Inflation is an important economic indicator that characterizes the increase in the prices of consumer goods over a certain period of time.The formula for calculating inflation can also be used to calculate deflation - price reductions. To calculate the inflation rate, you will need a consumer price index (CPI) or data on the prices of goods for a certain period of time, as well as a formula. You can use the formula to calculate inflation for almost any period of time.

Steps

Method 1 of 2: Finding the Information You Need to Calculate Inflation

1. 1 Study the average prices of several items over several years. The inflation rate is calculated by comparing the prices of standard goods over different periods of time - such goods can be, for example, a loaf of bread or a liter of milk. You can use either real price information ("In 1962, the cost of 1 liter of milk was $ 1.00"), or you can use the consumer price index (CPI).
   • The more data you have, the better. If you have multiple price data, then you should use the average of all prices - do not select just one price metric to compare.
   • The CPI is calculated annually based on the average prices of various goods, so this indicator is more effective in comparison with the prices for one particular product.
2. 2 Download the consumer price index. The consumer price index is a monthly and yearly breakdown of any price changes based on the average prices mentioned above. If the CPI in a particular month is higher than in the previous month, then this indicates inflation. If the CPI is lower, then this means deflation.
   • You can visit [bls.gov/cpi Bureau of Labor Statistics] to download the latest inflation reports.
   • Inflation is calculated using the same formula in any country. Make sure that all numbers and data that you intend to use for calculations are in the same currency.
3. 3 Decide for what period of time you will calculate inflation. You can calculate inflation for a month, a year or a decade - the most important thing is to decide what time period you need. Be sure to make sure you have enough data for the selected time frame.
   • Inflation exists within a certain period of time - there is no such thing as "general inflation". Remember inflation shows the value of money. In other words, it shows how much money you need to buy goods at one point in time, and how much money you need to buy the same goods at another point in time. To get a measure of inflation, you have to compare prices at a given point in time with the price at another point in time - this ratio will be an indicator of inflation for the selected period.
4. 4 Find the product price or CPI value for an earlier date. Use CPI or commodity prices at the beginning of the selected period, or use an average.
5. 5 Find product prices or consumer price indices for a specified period. Now take the price data for the current period. If you are doing any kind of historical research (for example, studying inflation before and after World War II), then it can be useful to collect data for 2-3 years to account for any short-term surges in inflation, and find out the general economic trends over a selected period of time.

Method 2 of 2: Calculating inflation

1. 1 Formula for calculating inflation. The formula for calculating inflation is simple. “Above”, that is, in the numerator of the formula, is the CPI difference at the beginning and at the end of the period (inflation rate), and “below”, that is, the denominator is the CPI for the beginning of the time period. Next, you will need to multiply the resulting value by 100 in order to get the answer in an easy-to-read percentage:
   • ${ displaystyle { frac {CurrentCPI-HistoricalCPI} {CurrentCPI}} * 100}$
2. 2 Plug in your data into the formula. For example, suppose we are calculating inflation based on bread prices from 2010 to 2012.Let's say that the price of bread in 2012 was $ 3.67 and in 2010 it was $ 3.25.
   • ${ displaystyle { frac { $ 3.67 - $ 3.25} { $ 3.67}} * 100}$
3. 3 Calculate the result. Find the difference in the price of the item, and then divide the difference by the price of the bread. Multiply the result by 100% to get the result as a percentage.
   • ${ displaystyle { frac { $ 3.67 - $ 3.25} { $ 3.67}} * 100}$
   • ${ displaystyle { frac { $ 0.42} { $ 3.67}} * 100}$
   • Finally, ${ displaystyle Inflation = 0.1144 * 100}$.
   • The inflation rate is 11.4%
4. 4 Compare the result with the data on the Internet. If you are interested in real data on inflation, then you can always find it on the Internet. You can find online inflation calculators where you just need to enter the price (or CPI) values ​​and the comparison years to get all the inflation figures you need.
5. 5 How to understand the inflation rate. The resulting percentage means that today your money (dollars in our example) is 11.4% less valuable than it was in 2010. In other words, most products cost 11.4% more than in 2010 (note that this is true only in our example, which may not correspond to reality). If, as a result of calculations, you get a negative value, then this means deflationin which a lack of cash makes it more valuable over time. Use the formula in the same way as for a positive difference in price change.
6. 6 Record inflation along with the time frame in question. Inflation is indicative only when the period of time for which it is calculated is indicated. Do not forget to make sure that the received data is correct and corresponds to a certain period of time.

Tips

• You can use a ready-made online inflation calculator (for example, on the US Bureau of Labor Statistics website) to calculate the inflation rate over a specific period of time. Go to bls.gov/data/inflation_calculator.htm, enter the amount of money and the time period you are interested in.

What do you need

• Paper
• Pencil
• Calculator
• Consumer price index or price data