While doing research for a recent custom data request, I needed to do a buying power calculation using the US Consumer Price Index (CPI) data. I’ve never done this calculation before, so I set aside a few hours to research & understand the correct formula to use and a few more minutes to identify the average Consumer Price Index figures to plug into the formula.
But instead I found a simple tool for US buying power calculations that saved me from doing the above hours of work: the US Bureau of Labor Statistics (BLS) CPI Inflation Calculator. You simply plug in the dollar values & adjust the years! The BLS calculator works well for calculating the buying power for historic US Census Bureau financial data like median household income. Let’s look at an example.
Example: Did the Buying Power of the Median Household Income increase or decrease from 1999 to 2010?
- The 2010 median household income for Los Angeles city, CA is $47,031 in 2010 inflation adjusted dollars with a margin of error of +/-$755 according to the 2010 American Community Survey 1-Year Estimates.
- The 2000 median household income for Los Angeles city, CA is $36,687 in 1999 dollars according to the Census 2000 Summary File 3.
To figured out if the median household income buying power of Los Angeles city has increased or decreased, I just plug the data into the BLS calculator.
The calculator reflects that $36,687 in 1999 has the same buying power as $48,018.13 in 2010, which is slightly more than the 2010 median household income $47,031 value–even if we consider the $755 margin of error. Using the BLS calculator, we can estimate that the buying power of the median family income in 2010 for Los Angeles city is slightly lower than the buying power of the median family income in 2000.
I did a little digging into how the BLS calculator works and was disappointed that I couldn’t find the formulas or the CPI values that the calculator uses. Plus I’m pretty sure I remember reading that there are actually regional & city CPI values — so it would likely be more accurate to do this calculation using the city of Los Angeles values or the values for the region that include Los Angeles city. That said, the BLS calculator is a simple & citable solution to do a quick US inflation calculation. Plus, I feel pretty confident using the BLS calculator, especially since they are the agency responsible for collecting & publish US CPI data.