CPI Price Increase

What is a CPI price increase?

The Consumer Price Index (CPI) is a measure of how prices change over time for a fixed basket of everyday goods and services. In the US, the Bureau of Labor Statistics publishes it. The most quoted version is CPI-U, the index for all urban consumers.

A CPI price increase ties your fee to that index. If prices in general rose 3% over the year, your fee rises 3% at the next adjustment, often when an auto-renewal clause starts a new term.

Some vendors add a margin on top. Calendly's customer terms, for example, allow a renewal price increase of the Consumer Price Index plus 3%, unless Calendly gives notice of a different rate. Its terms do not say which CPI series or period it uses.

How it is calculated

The BLS explains how to calculate a percent change in the index. You compare two index values and turn the difference into a percentage:

1. Take the index value for the later month.
2. Subtract the index value for the earlier month.
3. Divide the result by the earlier value.
4. Multiply by 100 to get the percent change.
5. Apply that percent (plus any margin in your contract) to your current fee.

The BLS example uses the CPI-U for December 2021 (278.802) and December 2022 (296.797). The difference is 17.995, which divided by 278.802 is about 6.5%. On a $10,000 subscription, a CPI-only increase for that period would add about $650. A CPI plus 3% clause would add about $950.

A CPI clause is one form of price escalation clause. Another form is a fixed rate, such as the 3% yearly increase in Cloudinary's enterprise agreement. A fixed rate is known at signing. A CPI rate is not.

Why it matters to you

• You cannot predict it at signing. Your increase depends on inflation you do not know yet. In a high inflation year, it can be larger than a fixed uplift.
• The margin compounds. CPI plus 3% is always more than inflation, every year it applies.
• Vague wording favors the vendor. If the clause does not name the index or the months compared, the vendor picks.

What to check

• Which index is named: CPI-U for the US city average, a regional index, or another country's index.
• Which months are compared, and when the increase applies (each anniversary, or only at renewal).
• Whether there is a margin on top of CPI, and whether you can remove it.
• Whether there is a ceiling. Ask for the lower of CPI or a fixed cap, such as 3%. See renewal price cap.
• Whether the clause can also lower the price if the index falls, or only ever goes up. Put the final wording in your order form.

How Venpo helps

Venpo watches your vendors' terms and billing pages and emails you when pricing rules change, such as a new CPI clause or a bigger margin on top of it. The Fine Print Scan also answers, for each vendor, whether it can raise your prices.