The consumer price index (CPI) or also known as the Consumer Price Index (CPI) is a measure of changes in product prices over a certain period of time, and is used as an indicator of the cost of living and economic growth. In Indonesia, the official CPI is calculated based on data collected on the prices of general consumer goods within a given urban area. This article will explain how you can calculate the CPI yourself.
Step
Method 1 of 2: Making a Sample CPI Calculation
Step 1. Look for records of past prices
Grocery notes from last year can be put to good use for this purpose. For an accurate calculation, use a sample price based on a relatively short time span-perhaps just a month or two from last year.
If you are using old notes, make sure they have a date. Just knowing that the listed price is not the current price, doesn't explain any real point. Changes in the CPI are only relevant if they are calculated for a specific measurable time span
Step 2. Add up the prices of the items you bought earlier
Using records of past prices, add up a sample of the prices of the goods.
- Normally, the CPI is limited to some of the most frequently used consumer goods-foods like milk and eggs, and others like washing machine detergent and shampoo.
- If you are using your own purchase records and trying to determine the general trend of prices rather than just determining the change in the price of a single item, you may want to eliminate items that are rarely purchased.
Step 3. Look for a record of the current prices
Again, notes can be used well for this purpose.
- If you use a relatively small sample of goods, you may be able to look up prices in flyers sent by retail stores.
- For comparison purposes, it may be useful to verify that the prices used are based on the same brand and from the same retailer. Because prices vary across stores and from brand to brand, the only way to track price changes over time is to minimize these variables.
Step 4. Add up the current prices
You should use a list of items that are identical to the items you used when you added up past prices. For example, if a loaf of bread is your first listing, a loaf of bread should be part of the current prices.
Step 5. Divide the current prices by the old prices
For example, if the current total price is $1,170,000.00, and the past total price is $1,040,000.00, the result is 1,125 (denoted mathematically, 1,170,000 1,040,000 = 1,125).
Step 6. Multiply the result by 100
The baseline for the CPI is 100-that is, the initial reference point, when compared to that baseline, equals 100%-making your figures comparable.
- Think of the CPI as a percentage. The past price represents the baseline, and the baseline is described as 100%.
- Using the previous example, the current price becomes 112.5% of the past price.
Step 7. Subtract 100 from the new result to find the change in CPI
By doing this, you subtract the baseline-denoted by the number 100-to determine changes over time.
- Again, using the example above, the result would be 12.5, representing a 12.5% change from the first period to the second period.
- A positive result represents the rate of inflation; a negative number represents deflation (a fairly rare phenomenon in most of the world since the mid-twentieth century).
Method 2 of 2: Calculating Price Change for One Item
Step 1. Find the price of an item you bought in the past
Try to find items you know the exact price for, as well as items you recently bought
Step 2. Find the current price for the same item
It is better to compare the prices of the same brand of goods purchased in the same store. Again, the goal of the CPI is not to determine how much savings you make by shopping at a different store or switching to a generic brand.
Also avoid comparing discounted items. The official CPI in Indonesia is calculated by the Central Bureau of Statistics using large quantities of goods, found in various locations to eliminate short-term fluctuations. Calculating change for individual items is still useful, but sales is another variable that should be eliminated
Step 3. Divide the current price by the past price
So if a box of cereal in the past was worth $3,500.00 but is now worth $35,750, the result is 1.1 (denoted mathematically, 35,750 32,500 = 1, 1).
Step 4. Multiply the result by 100
Again, because the baseline for the CPI is 100-that is, the initial reference point, when compared to that baseline, equals 100%-makes your figures comparable.
Using the example above, the CPI would be 110
Step 5. Subtract 100 from the CPI to determine the price change
In the case of the example, 110 minus 100 equals 10. This means that the price of the particular item under study has increased 10% over time.
