Breaking News: Consumer Price Index (CPI) Formulas Explained
Two Primary Formulas Used to Calculate CPI-U
The more common CPI-U calculation entails two primary formulas. The first is used to determine the underlying price changes for a specific item, while the second combines these individual price changes to arrive at the overall CPI-U value. This method provides a comprehensive representation of inflation and cost of living trends.
Formula to Determine Individual Price Changes
To determine the price change for each item in the CPI-U basket, the following formula is employed:
(Current Price - Previous Price) / Previous Price x 100
This calculation determines the percentage change in price from one time period to the next.
Formula to Calculate Overall CPI-U Value
Once the individual price changes have been calculated, they are weighted according to their importance in consumer spending patterns. The weighted average of these price changes is then used to obtain the overall CPI-U value using the following formula:
Weighted Average of Individual Price Changes x 100
Comments