How to Calculate Change in Price Levels

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Over time, the average price of goods and services in the economy can increase or decrease. To calculate the percentage change in price levels, subtract the base index from the new index and divide the result by the base index.

An aggregate increase in price levels is called inflation, and a decrease indicates deflation. The U.S. Federal Reserve can enact monetary policies to stabilize inflation rates, but prices generally tend to increase over time. That's because the Federal Reserve aims for the economy to experience 2 percent annual inflation. As inflation incurs and price levels increase, the purchasing power of a dollar decreases.

If you want to measure the change in aggregate prices for certain consumer products, the consumer price index is your best source of information. The [Bureau of Labor Statistics](http://www.bls.gov/cpi/cpi_dr.htm#2006) reports monthly and annual consumer price index information. Each index represents the price of a basket of goods relative to an average price level based on 1982 to 1984 data. For example, an index of 110 means that prices for that basket of goods are 110 percent of the average price in the 1980s.

  1. Find the source of data for your information. Navigate to the Bureau of Labor Statistics' annual report page to get comparative data and note the index points for the product you want to measure. 
  2. Identify the base index level and the new index level for the product you're interested in. For example, if you want to calculate the change in the price of alcoholic beverages from 2005 to 2006, the base index would be 195.9 index points and the new index would be 200.7 index points.
  3. Subtract the base index from the newer index. In this example that would be 200.7 minus 195.9, or 4.8.
  4. Divide the difference in index points by the base index to find the percentage change in price. In this example, that would be 4.8 divided by 195.9, or 2.5 percent. Between 2005 and 2006, prices on alcohol rose 2.5 percent.

Tip

  • In addition to consumer price levels, the Bureau of Labor Statistics also publishes information about the producer price index, which is the prices that producers pay for goods.

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