WHAT IS Reference Base Period
The reference base period is the year in which the Consumer Price Index, measuring changes in consumer prices in the U.S., is equal to 100. A reference base period serves as a benchmark for future periods, allowing economists to judge the rate of U.S. inflation over time.
The reference base period provides an easy way for analysts to convey how much inflation has occurred from one year to the next. For example, if the current year has a CPI of 115, this would mean that prices today have increased by 15% from the base year, when CPI was 100.
BREAKING DOWN Reference Base Period
The reference base period is currently set between 1982 and 1984. Therefore, if CPI rose from the reference base period, when it was valued at 100, to 118.3 by 1988, consumer prices would have risen by 18.3% over that time frame.
However, one needs to perform a slight calculation to determine the percent change in CPI between any two years, as follows:
Percent change in CPI = (end value of CPI - start value of CPI)/ start value of CPI * 100.
For example, assume CPI is 245.12 in 2017 and 207.3 in 2007.
To calculate the rise in CPI from 2007 to 2017, take:
CPI value in 2017, minus the CPI value in in 2007 to get 37.82.
Next, take 37.82 divided by 207.3 to get 0.1824.
Then take 0.1824 and multiply by 100 to get 18.24%
Note that the 18.24% reflects the aggregate rise in consumer prices over the 10 years, and not an average increase in CPI per year.
To get a sense of the change in consumer prices year-over-year, it is not necessary to know the reference base year, provided a trusted source already has performed the calculations. The U.S. Bureau of Labor Statistics offers many such tables, as does the Federal Reserve Bank of Minneapolis, which provides the annual change in CPI going back to 1913.
Reference Base Period for CPI Components
While most offshoots of CPI use the same reference base period, a few use a different one. For example, CPI takes into account spending by urban consumers, which the U.S. Bureau of Labor Statistics says represents about 93 percent of the total U.S. population. The BLS measures consumer inflation for all urban consumers using two separate indexes, namely, the Consumer Price Index for All Urban Consumers and the Chained Consumer Price Index for All Urban Consumers. While the former has the same base year as CPI, the latter uses a base of December 1999.