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The Consumer Price Index and Inflation - Adjust Numbers for Inflation

Author(s): 
Elizabeth B. Appelbaum

The Consumer Price Index is often used to adjust data for inflation. For example, say you had a monthly salary in 1991 of $5000. What was the equivalent salary in 2001? The CPI in 1991 was 136.2, and in 2001 it was 177.1. The ratio of these two numbers should match the ratio of the salaries in order to keep the buying power the same. Thus, we need to find the salary x such that

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  • Solve this equation for x to find the monthly salary in 2001 equivalent to $5000 in 1991.

Your answer should be somewhat more than $6500. If you earn less than that, you are not keeping up with inflation -- your income on paper may look like it has increased by, say, 25%, but you cannot buy the goods and services you bought before. You need an increase of about 30% to keep up with inflation for this period.

The same information about equivalent salaries can be calculated on the Web site of the Bureau of Labor Statistics. Go to Inflation & Consumer Spending and Inflation Calculator.

Elizabeth B. Appelbaum, "The Consumer Price Index and Inflation - Adjust Numbers for Inflation," Loci (December 2004)

JOMA

Journal of Online Mathematics and its Applications

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