33 Constructing the CPI

Constructing the CPI

The CPI for the month equals 100 multiplied by the ratio of the cost in the current month to the cost in the base period, or

For example, suppose the initial survey shows that the CPI market basket is 2 books and 20 coffees. The initial base period prices and quantities are in the first table below. In this base period, say 2011, the cost of the CPI market basket is $100.

Next, suppose that the BLS survey taken one month in 2012 reveals that the price of a book is $35 and the price of a coffee is $3. These 2012 prices and the initial base period quantities are shown in Table 1. In this period, the cost of the CPI basket is $130.

Using these data, the CPI equals ($130 ÷ $100) x 100, or 130%.

So, between the base period and the current period, the CPI has risen by 30 percent (130% – 100%). ⁽¹⁾