When they say inflation is 7%, is that just compared to items one year ago?
Now that we’re in a new year, shouldn’t there be a sudden reset in inflation being 2-3% again?
In: 1
Inflation is generally the percentage change in CPI over a year.
CPI is the consumer price index. Basically, many households that represent the general population are surveyed on all of the products they buy in a year. These items are the put in to a “basket”
The value of this basket is recorded and the prices are then recorded each year. A chosen year is designated as the “base year” for calculations. To calculate CPI, you divide the current price of the basket by the base year price then multiply by 100.
So if the basket was $1000 in 2020 (base year), then $1200 in 2021
$1200/$1000 * 100 = 120
If its $1350 in 2021:
$1350/$1000 * 100 = 135
now to calculate inflation, you would calculate the percentage difference between 2 years. The inflation between 2021 and 2022 in this example would be:
( (CPI 2022) – (CPI 2021) ) / (CPI 2021) * 100
or
( (135 – 120) / 120 ) * 100 = 12.5% Inflation between 2021-2022
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