 ### ECO 202 Cram Kit Bundle

Unemployment
Types of Unemployment
Unemployment Measures
Okun’s Law
Misery Index
Economic Measures
Consumer Price Index (CPI)
Gross Domestic Product (GDP)
Gross National Product (GNP)
Potential Output
Money Supply
Stock vs. Flow
Economic Models
Supply & Demand
Aggregate Supply & Aggregate Demand
Economic Gaps
Interest Rates
Interest Rates
Loanable Funds
Comprehensive

# 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.

...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!

We're subtracting our CPI by 100...

Cumulative inflation % = CPI - 100

...because CPI is based on an index of 100. Remember what we said before:

The base / starting point / index for CPI is 100.

In other words, the index for a CPI is at 100, so subtracting 100 from the CPI shows us how much our CPI differs from the base value!