CPI Calculation

In this example, the period is January 01, 2020, to December 31, 2022. On January 01, 2021, the current CPI is 110.5, and the base CPI rate is 105.65 (the CPI value at the time the contract starts).

In the Advanced Recurring Contract Billing Parameters page, you set CPI index calculation to Base CPI.

The escalation amount is calculated with the initial amount of 1000.00:

  • 1000 + (110.5–105.65)/105.65*1000 = 1045.91

Similarly, the escalation amount for period January 01, 2022, where CPI is 114.25 is calculated as follows:

  • 1000 + (114.25-105.65)/105.65*1000 = 1081.40

In the Advanced Recurring Contract Billing Parameters page, you set CPI index calculation to Prior CPI.

The period is January 01, 2020, to December 31, 2022. The current CPI on January 01, 2021, is 110.5, and the base CPI rate is 105.65 (the CPI value at the time the contract starts).

The first escalation amount is calculated with the amount of 1000:

  • 1000 + (110.5–105.65)/105.65*1000 = 1045.91

Similarly, the escalation amount for period January 01, 2022, where CPI is 114.25 is calculated as follows:

  • 1045.91 + (114.25-110.5)/110.5*1045.91 = 1081.40

Notes:

  • The escalation process uses the latest CPI value, regardless of the index date.
    For example, if the escalation happens in September, but the latest CPI value is for July. The July index is used. No adjustments are made after the September index is entered.

Prorated Escalation

If the escalation happens in the middle of a billing period, the amount will be prorated. For example, the billing period is August 01, 2020, to July 31, 2021. The CPI value is 244 on CPI Date September 01, 2019, and 250 on CPI Date September 01, 2020. If the previous rate is 1000, the following equations show how the billing amount for this period is calculated:

  • CPI changes = (250 – 244)/244 = 2.459%
  • Current Rate = 1000*2.459% = 1024.59
  • Number of days @ current rate = July 31, 2021 – September 01, 2020 = 334
  • Previous Rate = 1000
  • Number of days @ previous rate = August 31, 2020 – August 01, 2020 = 31
  • Total number of dayss in the billing period = July 31, 2021 – August 01, 2020 + 1 = 365
  • The billing amount for this period = 1000*31/365 + 1024.59*334/365
  • = 1022.50

Escalation Using CPI and %

Escalations can also be done by CPI. The CPI + 3% escalation starts on January 01, 2020, with Annual frequency. Amount billed for January 01, 2019 to December 31, 2020, is 4000. The billing period to be escalated is January 01, 2020 to December 31, 2020. The CPI value is 205.3 on the CPI Date December 01, 2018, and also is 219.6 on the CPI Date December 01, 2019. If previous rate is 4000, the following equations show the billing amount for this period is calculated:

  • CPI changes = (219.6 – 205.3)/205.3 = 6.965%
  • Current Rate = 4000*6.965% - 4000 = 278.60
  • Percentage changes = 4000*1.03 - 4000 = 120
  • Billing amount = 4000 + 278.6 + 120 = 4398.6