How to Calculate CPI (Consumer Price Index)
CPI equals the cost of the market basket in the current year divided by its cost in the base year, times 100.
Formula
CPI = (cost of basket in current year ÷ cost of basket in base year) × 100
Steps
- 1Price the basket in the base year. Add up the cost of the fixed market basket using base-year prices.
- 2Price the same basket now. Cost of the identical basket using current-year prices.
- 3Divide and rescale. CPI = (current cost ÷ base cost) × 100. The base year's CPI is always 100.
Worked example
If the basket costs $200 in the base year and $250 now, CPI = (250 ÷ 200) × 100 = 125, meaning prices are 25% higher than the base year.
Frequently asked questions
How do you get the inflation rate from CPI?
Inflation rate = [(CPI₂ − CPI₁) ÷ CPI₁] × 100 between two years.
How is CPI different from the GDP deflator?
CPI tracks a fixed basket of consumer goods; the GDP deflator covers all domestically produced goods and updates its basket. They usually move together but not identically.