How to Calculate Rate of Inflation With an Implicit Price Deflator

by C. Taylor

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.

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