The CPI, short for Consumer Price Index, has many different applications and holds influence over many aspects of American life and government assistance. If you're looking to analyze the change in CPI indexes over a period of time, you can determine the change using the percent change in CPI formula.
What Is the CPI Index?
According to the team at the U.S. Bureau of Labor Statistics (BLS), the CPI is a published index that reveals the change in price of the "market basket," a specific collection of goods and services, over time from a base period set at 100.0. For example, an increase of 5 percent from the base period would be noted as 105.0.
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The increase could also be expressed as a dollar amount. If the base period of the "market basket" is $100, the rise of 5 percent would be expressed as $105. However, the BLS notes that index numbers are not dollar values but measurements of change over time, compared to the base period. They can help to determine changes against any set period of time, from monthly to quarterly to annually.
Base Years and Inflation
Every CPI index uses a set of base years that the index sets at 100.0. Expenditure weights are then added every two years to ensure the CPI remains current with changing consumer prices. While the base period for most current CPI indexes is based on the years 1982 to 1984, certain indexes may reference a different set of years as their base, BLS writes.
According to the BLS, the CPI is used to measure inflation and determine the dollar's purchasing power. The CPI also holds influence over income payments, such as Social Security, as well as many other government programs.
How Is the CPI Market Basket Determined?
According to the BLS, detailed expenditure information is used to determine the market basket used in the CPI. The data is derived from information provided by families and individuals on their purchases; however, it's essential to note that there's a time delay between information provided and when it's inputted.
For example, the 2020 and 2021 CPI uses data collected from the 2017 and 2018 Consumer Expenditure Surveys, in which roughly 24,000 consumers provided their spending habits for each quarter. An additional 12,000 participants were asked to keep diaries in which they list their purchases during a two-week period.
From 2017 to 2018, the data from 48,000 quarterly interviews and 24,000 weekly diaries were used to create the CPI, determining the importance of each item category.
Percentage Change in CPI Formula
While the BLS doesn't have a CPI calculator for percent change, it has a CPI inflation calculator that will provide you with the change in a dollar amount. However, if you wish to determine the percent change, the percent change in CPI formula is a straightforward three-step process.
First, determine the difference between the two indexes you will be using. For example, suppose you are determining the percent change between a BLS-provided hypothetical May 2016 (250.236) and April 2016 (239.261) CPI index.
250.236 - 239.261 = 0.975
Next, divide the difference by the earlier index.
0.975 / 239.261 = 0.004075
Finally, convert this value into a percentage by multiplying by 100 to determine the percent change.
0.004075 * 100 = 0.4 percent
According to the calculation, the percent change from May 2016 to April 2016 is 0.4 percent.