In the world of personal finance, there are two types of inflation calculator:
Backward looking calculators are the basis for all forward looking calculators. What I mean is that everyone quotes an average rate of inflation (typically 3% per year), which is just the historical average.
The the Bureau of Labor Statistics (BLS) collects price information on a list of 80,000 or so products/services every month (sort of like looking through advertisements and recording prices every week).
They average these prices together and come up with a total number called the consumer price index (CPI). The CPI is a measurement of how much things cost.
By calculating the change in CPI, the BLS can determine the inflation percentage.
Impact of Government Changes to the Calculation of Inflation
Since the government changes the formulas used to calculate CPI to suit their needs, making apples to apples comparisons over long periods of time is difficult.
By changing the "math", the causes of inflation are also more difficult to figure out.
But as a rule of thumb, when the CPI increases, we are experiencing inflation.