Two indices are used to calculate inflation. The Consumer Price Index (CPI) is typically used to calculate inflation as it applies to individual consumers. The Implicit Price Deflator (IPD) is used to calculate inflation at the corporate or governmental level because this index includes all product types, rather than ones typically consumed by individuals. The IPD represents the percent change from a base year, which changes every several years. However, you can use the IPD to calculate inflation between any two years.
Browse to the U.S. Bureau of Economic Analysis website at “bea.gov” and reference the Implicit Price Deflator data for Gross Domestic Product. You will need the IPD for the two years for which you wish to calculate inflation. As an example, the IPD was 109.729 for 2009 and 110.992 for 2010.
Divide the later year by the earlier year. In the example, you would divide 110.992 by 109.729 to get 1.01151.
Subtract 1 from this figure to calculate the inflation rate. Continuing the example, the result is 0.01151.
Multiply the foregoing result by 100 to convert the inflation rate to a percentage value. In the example, the inflation between 2009 and 2010 was 1.151 percent.
References
- Metropolitan Human Services Commission: Inflation Rates and Adjustments - Implicit Price Deflator
- Municipal Research and Services Center of Washington: Implicit Price Deflator for Personal Consumption Expenditures Referendum 47's Measure of Inflation
- Journal of Economics, Business and Management, Vol. 3, No. 7, July 2015. "An Examination on the Determinants of Inflation," Page 678. Accessed March 19, 2020.
- U.S Census. "Median and Average Sales Prices of New Homes Sold in United States," Accessed March 19, 2020.
- U.S. Energy Information Administration. "Short-term Energy Outlook: Real Prices Viewer." Select "imported Crude Oil Prices," Select "Monthly." Download Excel Spreadsheet. Open tab titled "Crude Oil-M." Use second column "Imported Crude Oil Price Nominal." Accessed March 19, 2020.
- Federal Reserve Board of Governors. “What Are the Federal Reserve's Objectives in Conducting Monetary Policy?” Accessed March 19, 2020.
- Federal Reserve Bank of Cleveland. "Inflation 101," Accessed March 17, 2020.
Writer Bio
C. Taylor embarked on a professional writing career in 2009 and frequently writes about technology, science, business, finance, martial arts and the great outdoors. He writes for both online and offline publications, including the Journal of Asian Martial Arts, Samsung, Radio Shack, Motley Fool, Chron, Synonym and more. He received a Master of Science degree in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences at College of Charleston. He also holds minors in statistics, physics and visual arts.