How does the CPI help calculate the inflation rate of a country?

Answer 1

Ex: CPI in 2000 is 3,500 CPI in 2001 is 4,500

What's the inflation rate?

4500 - 3500 = 1000 1000/3500 = .2857.... .2857 * 100 = 28.57 is the INFLATION RATE

In generality: CPI (Target year 1) - CPI (Target year 2) / CPI (Target Year 2) For this year's inflation since last year: CPI (This Year) - CPI (Last year) / CPI (This year)

Source: easycalculation.com

Answer 2

The CPI is a "market basket" (collection) of goods and services that is used to measure changes in market prices. The data is collected from a series of interrelated samples. First, using data from the Census of Population, the Bureau of Labor Statistics (BLS) selects urban areas from which data on prices are collected. The Census of Population provides data on the number of consumers represented by each area selected as a CPI price collection area. Next, another sample (of about 14,500 families each year) serves as the basis for a Point-of-Purchase Survey that identifies the places where households purchased various types of goods and services.

This information enables BLS to construct the CPI market basket of goods and services and to assign each item in the market basket a weight, or level of importance, based on total family expenditures. The final stage in the sampling process is the selection of the specific detailed item to be priced in each outlet.

Price changes are weighted by the importance of the item in the spending patterns of the appropriate population group. The combination of all these factors gives a weighted measurement of price change for all items in all outlets in all areas priced for the CPI.

Additional information about the Consumer Price Index (CPI) can be found at www.bls.gov/cpi.

The CPI measures increases in the cost of a collection of commonly purchased items. While many experts believe the CPI does not accurately reflect the cost of living for all U.S. families, it is nonetheless the most widely used barometer of inflation. For example, the CPI is used as the basis for annual cost of living adjustments (COLAs) for Social Security.

Answer 3

Divide the CPI for the later point in time by the CPI for the earlier point in time, subtract 1, and multiply by 100. (This gives the absolute inflation for the period.) For an easy to see example suppose the CPI on 1/1/78 was 107 and on 1/1/77 it was 100: 107 / 100 = 1.07 - 1.0 = 0.07 x 100 = 7% (for the year) For another example suppose the CPI on 3/1/09 was 331 and on 2/1/09 it was 332: 331 / 332 = 0.997 - 1.0 = -0.003 x 100 = -0.3% DEFLATION (for the month) To find the annualized inflation for a multiyear period there is another step. Suppose the CPI on 7/1/1999 was 210 and on 7/1/1988 it was 150 Inflation for the total 11 year period was 210 / 150 = 1.4 - 1.0 = 0.4 x 100 = 40% (for the entire 11 year period) but the annualized inflation is 210 / 150 = 1.4 ^ 1/11 = 1.031 - 1.0 = 0.031 x 100 = 3.1% per year where the extra step is raising the first quotient to the power of the reciprocal of the number of years as shown. In particular, note that simply dividing the total inflation by the number of periods is not correct. This is because of "compounding".

Answer 4

norminal GDP

REAL GDP