Figuring Inflation

The most common form of figuring inflation uses the consumer price index (CPI) to monitor the changes over time. These numbers are tracked and compiled, by region, by the Bureau of Labor Statistics. There are different indices but the most revealing of all is the CPI for all items. This includes energy, food, service, and other costs. The only notable thing it excludes is healthcare costs. These numbers give us an idea of what consumer spending is for many different items and categories over a period of time, which gives a fairly accurate depiction of inflation itself.

To figure inflation the first thing we will need is a data set for the regions you are interested in. I chose national and southeast. Keep in mind that it takes a while to compile all the data, so there is always a lag in what is available. Here are the numbers since 12/2006:

 % inflation for period = [ (cpi² – cpi¹) / cpi¹ ] * 100

To calculate the total inflation throughout 2007 we take the index from December 2006, to account for the change in January 2007, and the index from December 2007 and plug them into our formula:

[ ( 210.036 – 201.800 ) / 201.800 ] * 100 = 4.08%

Likewise, we can calculate the inflation for 2008 using the same methods, which show us to be off to a rocky start:

[ ( 214.823 – 210.036 ) / 210.036 ] * 100 = 2.28%

These calculations are important to keep in mind when it comes to negotiating salary, regardless of whether it is for a job offer, a raise, or anything else. If the inflation rate you calculate is less than when the compensation increase is, you are losing real income, if the inflation rate is the same then you are breaking even, and if the inflation rate is lower then you are increasing your compensation.