The Consumer Price Index (CPI) base year is a reference point used in calculations to determine percentage changes in the prices for consumer goods. A number of nations use the CPI to determine how much money is needed to purchase basic items. This value can also provide information about changes in purchasing power over time. When statistical reports discuss things like a 1% change, they are referring to a change from a CPI base year.
Simplistically, an agency could decide to set 1990 as the CPI base year, deciding that 1990=100. When it declares that the index for 2007 shows a +7% change, it means that it is at 107% of the base year. A hypothetical “basket” of basic goods like milk and bread will cost 7% more than it did in 1990. This can be one way to look at inflation, although inflation rates can vary on individual goods, which is important to keep in mind.
Decisions about when to fix a base year can be based on available statistics, preference, and the desire to be able to compare data between years. In agency reports and statistics, the CPI base year should always be disclosed for the reference of readers. Otherwise, percentage change information has no context; a statement like “the CPI increased by 23%” is useless without knowing from when. If it increases by 23% in a year, that would be quite significant, while a rise of 23% in 100 years would be less remarkable.
Agencies tasked with collecting and reporting CPI data may provide national as well as regional numbers. This helps determine where the cost of living is high, and track changes in individual regions over time. The CPI base year in this reporting may vary, depending on where statisticians think it should be fixed. They may, for example, want to avoid a turbulent year in a given region because it wouldn’t make a fair reference comparison for changes in the CPI.
Data on the CPI is readily available. It is possible for an individual analysis to use a different CPI base year, since the information needed to do so is readily available. Researchers may compare and contrast reporting with different reference points to highlight the importance of selecting the right year, or to explore the possibility of moving the base year used in standard calculations to a more accurate date that better reflects changes in consumer costs over time.
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.