Cumulative inflation with CPI
When working with CPI, we can calculate the cumulative inflation in a market with the following equation:
Cumulative inflation % = CPI - 100
Cumulative inflation with CPI represents the total increase in price of consumer goods & services due to inflation!
Given the following basket of goods...
Question: Calculate the CPI based on the following table.
| Survey Year | Base Year | This Year | |
|---|---|---|---|
| Px | $3 | $4 | $6 |
| Py | $6 | $8 | $12 |
| Qx | 10 | 8 | 12 |
| Qy | 5 | 6 | 10 |
...we could calculate a CPI of 150.
From here, we can plug this into our cumulative inflation % formula...
Cumulative inflation % = CPI - 100
Cumulative inflation % = 150 - 100
...resulting in a cumulative inflation % of 50%!
Cumulative inflation % = CPI - 100
Cumulative inflation % = 150 - 100
Cumulative inflation % = 50
This shows us that since the base year, the prices of Px and Py have increased by 50% due to inflation!