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Understanding Consumer Price Index (CPI)

The document explains the consumer price index (CPI), which measures the average prices paid by consumers for a fixed basket of goods and services. It is calculated by comparing the cost of a basic basket in the base period versus the current period. The document provides a numerical example of the CPI calculation and explains how the inflation rate is calculated by comparing the CPIs of consecutive years.

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7 views2 pages

Understanding Consumer Price Index (CPI)

The document explains the consumer price index (CPI), which measures the average prices paid by consumers for a fixed basket of goods and services. It is calculated by comparing the cost of a basic basket in the base period versus the current period. The document provides a numerical example of the CPI calculation and explains how the inflation rate is calculated by comparing the CPIs of consecutive years.

Translated by

ScribdTranslations
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Consumer Price Index (CPI)

It is the average measure of prices that consumers pay for a 'fixed' basket of
goods and services for consumption. To calculate the CPI, three steps must be taken into account,
the cost of the basic basket at base period prices, the prices of the basket
basic to the prices of the current period and then calculate the CPI for the years
corresponding.

Example of CPI calculation:

Basic basket year 1990 (base year)

Article Quantity Price Cost per item


Razors 10 $800 8000
Haircuts 6 2000 dollars 12000
drinks 20 $500 10000
Apples 8 $100 800
Total: 30800

Canasta year 2010 (present year)

Article Quantity Price Cost per item


Razor blades 10 $1000 10000
Haircuts 6 $2000 12000
drinks 20 $600 12000
Apples 8 $150 1200
Total: 35200

Formula: Cost of basket current period x 100

Basket cost base period

Therefore: 35200/30800 x 100 = 114.29


To calculate price inflation:

The CPI is to measure changes in the cost of living. To measure these changes
we consider the inflation rate, which is the percentage change in the price level of
one year to the next.

Assuming that the CPI for the year 2010 was 114.29, as in the previous example, and the CPI
from the year 2009 was 110.32

Tasa inflación: CPI current year - CPI previous year x 100

CPI last year.

Therefore: (114.29 - 110.32) / 110.32 x 100 = 3.6%


Inflation rate

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