How do you figure inflation rate?

Answer 1

Frankly, it's not something that's easy to accurately figure for the average consumer, but what the government does is keep a list of goods and services that they consider "typical", and measure the price of that total over time. Then they take the cost of the new basket of goods, subtract the old basket of goods, and divide by the cost of the old basket of goods. For example, if this year's "basket" cost $1000 and last year it cost $930, then the inflation rate would be 1000 - 930 = 70 / 930 = 0.075 or 7.5 percent.

Keep in mind this is for a wide basket of a variety of goods which you may or may not use yourself. Your gas prices and electric bill might go up, but if your grocery costs go down, they tend to balance each other out somewhat. They'll also measure changes in what you get for the money too and factor that in.... for example if the box of crackers that still costs $1 now contains 12 ounces instead of 13, they adjust accordingly.