How to Calculate Inflation

Step-by-Step Guide

1. 1

   Step 1: Look up the average prices of the several products across a few years.

   Inflation is calculated by comparing prices of standard goods across time
   -- things like a loaf of white bread or a gallon of milk.
   
   This information is either given to you in your problem ("In 1962, the cost of milk was $1.00 a gallon...") or you can look up the real-life prices on the Consumer Price Index (CPI).The more data you have, the better.
   
   If you're offered sample prices on your practice problem, you must average all of the prices and use this
   -- don't just choose one price to compare.
   
   The CPI is calculated annually based on the average price of many goods, making it far more effective than a single good.
2. 2

   Step 2: Load the Consumer Price Index.

   This is a breakdown, by month and year, of the changes in inflation based off of the averages mentioned above.
   
   Any time the CPI is higher than the current month, it means there has been inflation.
   
   If it is lower, then there has been deflation.
   
   You can also go directly to the to download current inflation reports.
   
   Inflation is calculated with the same formula in each country.
   
   Make sure you are using the same currency for all your numbers in the calculation. , You can use months, years, or decades, as long as you clarify the period of time in your answer.
   
   Make sure you note the time frame you're measuring.Inflation must be over a timeframe
   -- there is no such thing as "general inflation." Remember, inflation tracks the worth of money: how much you need at one time to buy a good vs how much you need during another time.
   
   You must compare the price now to the price during some other time period to get inflation. , Look up your first date on the CPI, or get the average of the good you're planning on calculating. , Now, look up or calculate the data for the current price of the object.
   
   If you're doing historical research (for example, examining inflation before and after the Vietnam War), then it can help to get data from 2-3 different years, allowing you to account for any single-year spikes in inflation that could change the overall economic trends you're studying., This formula is simple.
   
   The "top" finds the difference in the CPI (rate of inflation), the bottom finds out what ratio of the total inflation that difference represents.
   
   Then you can multiply this answer by 100 to turn it into an easily-read percentage:
   CurrentCPI−HistoricalCPICurrentCPI∗100{\displaystyle {\frac {CurrentCPI-HistoricalCPI}{CurrentCPI}}*100}, For example, imagine that we are calculating the inflation based on the price of bread between 2010 and
   2012.
   
   For example, imagine the price of bread in 2012 is $3.67 and the price of bread in 2010 is $3.25. $3.67−$3.25$3.67∗100{\displaystyle {\frac {\$3.67-\$3.25}{\$3.67}}*100} , Solve for the difference in price, then divide it.
   
   Multiply the outcome by 100 to get a percentage. $3.67−$3.25$3.67∗100{\displaystyle {\frac {\$3.67-\$3.25}{\$3.67}}*100} $0.42$3.67∗100{\displaystyle {\frac {\$0.42}{\$3.67}}*100} Finally, Inflation=0.1144∗100{\displaystyle Inflation=0.1144*100}.
   
   The inflation rate is
   11.4% , If you're looking for perfect, real-world numbers, then go straight to the source.
   
   The calculator simply requires you to place in your amount, years to compare, and then spits out an inflation rate. , This percentage means that, in current dollars, your money is worth about
   12.9% less in today's dollars than they were in
   2010.
   
   In other words, most products cost on average,
   12.9% more than they did in 2010 (note
   -- this is an example, not actual data).
   
   If you had a negative number for your answer, you've been dealing with deflation, where a scarcity of cash makes your money more valuable, not less, over time.
   
   Use the formula just as you would with a positive figure., The inflation is useful only when assigned to the time period.
   
   Make sure any studies, news, or problems correctly account for the exact amount of time.
3. 3

   Step 3: Choose the period of time for which you will be calculating inflation.

4. 4

   Step 4: Find the price of the product you're studying or the figure on the Consumer Price Index for your earlier date.

5. 5

   Step 5: Find the price of the product or consumer price index figure for your later date.

6. 6

   Step 6: Learn the Inflation Rate Formula.

7. 7

   Step 7: Plug the data into the formula.

8. 8

   Step 8: Simplify the problem through order of operations.

9. 9

   Step 9: Check your answer against the US government-run Inflation Calculator

10. 10

    Step 10: which can check inflation between any two years in US history.

11. 11

    Step 11: Know how to read inflation.

12. 12

    Step 12: Label the inflation rate according to the period of time you have calculated.

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