How is inflation calculated using the CPI?

Inflation is calculated using the Consumer Price Index (CPI) by comparing the CPI values from different time periods. The method involves taking the change in the CPI, which is typically expressed as a percentage.

To determine the inflation rate, you subtract the initial CPI (the CPI from the base year) from the current CPI and then divide this number by the base year's CPI. The standard formula can be summarized as:

[ \text{Inflation Rate} = \frac{\text{CPI}{\text{current}} - \text{CPI}{\text{base}}}{\text{CPI}_{\text{base}}} \times 100% ]

When looking at the choices provided, the option that captures the essence of this calculation is the one where you take CPI and subtract 100 (which represents the base CPI typically set at an index of 100) and then divide by 100. This reflects the relative change from the base index and gives the correct representation of inflation as a percentage relative to the base year.

Thus, using the formula indicated in the choice leads to a proper understanding of inflation calculation, enabling one to see how prices have changed compared to a base year represented by CPI of