Question

Question Help A student visited a local supermarket on two days a month apart and selected 10 items of standard products that the shop always sells. She recorded the prices of these items on the two dates and the table shows her numbers Price in first month (base month) Price in second month Assume that a consumer buys one of each item in the basket the student has chosen Item (dollars per unit) Cereal Milk Bread Coffee Juice Tomato Pasta Bananas Chicken Ice cream 1.40 2.15 2.00 6.25 3.75 2.00 3.00 1.85 6.05 3.90 1.70 2.15 3.25 6.25 4.00 2.10 3.30 1.95 6.10 3.95 The consumer price index for the second month is The inflation rate of these 10 prices over the month is percent a month Enter your answer in each of the answer boxes.

Answer 1

A) Consumer Price Index calculates the total expenditure in the current period required to purchase the same selection of goods and services that was surveyed in the reference or base period. In the above question, let us solve for CPI for the second month by the following formula:

Updated cost for second month / Base month(1st month) cost * 100

We take the sum of the prices of goods in the second month and divide it by the sum of the prices in the first month and multiply it by 100.

Thus, CPI = 34.75 / 32.35 * 100 = 107.42

You may think of the 107.42 number as saying that the consumption basket in the second month costs 107 percent of the price of the basket in the base month.

B) The inflation rate is the percent change in the CPI . Hence, it will be 7.42%.