How to Calculate Annual CPI Rent Increases

Even in this digital age where information abounds, calculating Consumer Price Index (CPI) rent escalations remains a challenge, and Insider commonly receives requests from users struggling with the issue. There’s a lot at stake. If your CPI calculations aren’t accurate, you may not get the full rent escalations to which you’re entitled. Here’s a formula to simplify CPI calculations along with a step-by-step tutorial on how to use it, as well as a backup formula for ensuring its accuracy.

 

Here’s how to plug in the numbers you need to use the formula:

Current CPI: The U.S. Bureau of Labor Statistics (BLS) publishes different CPI figures each month, including the:   

• CPI for All Urban Consumers (CPI-U);
• CPI for Urban Wage Earners and Clerical Workers (CPI-W);
• Chained CPI for All Urban Consumers (C-CPI-U); and
• Average prices.

The CPI clause in your lease should specify both the type and particular month to use in determining the current CPI for purposes of calculating a rent escalation.

Example: The lease states that you will use the CPI-U “for Chicago-Naperville-Elgin, IL, IN, WI.” You’ve also agreed to an annual rent escalation to be made every April based on the January CPI figures. When you calculate the annual escalation in April 2024, your current CPI is the January 2024 CPI-U figure for Chicago-Naperville-Elgin.

Base CPI: Again, you’ll have to check your lease to find the designated “base month.” This will likely be the month in which the lease’s commencement month fell; or, your base month may change each year. For example, you may have agreed to use the month one year before your current CPI—January 2023 if your current CPI is January 2024. Find the CPI figure for this base month, and that will be your base CPI.

Base rent: The CPI or rent clause of your lease should identify the rent on which you’ll determine CPI changes. This may be a set minimum amount, typically referred to as “Base Rent” or “Minimum Rent,” or it may be the tenant’s rent before you calculate the latest CPI increase.

Example Formula Calculation

Let’s assume that the:

• Current CPI is 105.2;
• Base CPI is 102.2; and
• Base Rent is $420,000.

Step 1: Divide the current CPI by the base CPI:

105.2 = 1.0293542

102.2

Step 2: Multiply the product of Step 1 by the base rent:

1.0293542 x $420,000 = $432,328.76.

Result: $432,328.76 is the new, escalated rent.

Alternative Formula

There’s an alternative, more intricate formula for calculating the CPI escalation that will yield the same result. The alternative formula comes in handy if you want to determine the percentage increase in the CPI or as a way to double-check the accuracy of the previous formula’s results.

Example Formula Calculation

Let’s use the same figures as in the example of the original formula where the:  

• Current CPI is 105.2;
• Base CPI is 102.2; and
• Base Rent is $420,000.

Step 1: Subtract the base CPI from the current CPI:

            105.2 – 102.2 = 3

Step 2: Divide the product from Step 1 by the base CPI:

_3_ = 0.0293542

102.2

Step 3: Multiply the product of Step 2 by the base rent:

0.0293542 x $420,000 = $12,328.76.

Step 4: Add the product of Step 3 to the base rent:

$12,328.76 + $420,000 = $432,328.76.

Result: $432,328.76 is the new, escalated rent.

To determine the percentage increase in the CPI, go back to the product of Step 2 and move the decimal point two spaces to the right. Rounded off, the percentage increase in the CPI is 2.9 percent.