Question

The table below shows the price of the basket of goods and services for each of the following years: 2013 2014 2015 $85 per basket $97 per basket $102 per basket Using 2013 as the base year, calculate the consumer price index for each year Calculate the inflation rate from one year to the next. 2.

Answer 1

In 2013 CPI basket was worth $85 and 2013 is also the base year. Hence the CPI 2013 is Cost of basket in 2013 / cost of basket in base year = 85*100/85 = 100

In 2014 CPI basket was worth $97. Hence the CPI 2014 is Cost of basket in 2014 / cost of basket in base year = 97*100/85 = 114.118

In 2015 CPI basket was worth $102. Hence the CPI 2015 is Cost of basket in 2015 / cost of basket in base year = 102*100/85 = 120

Now inflation rate between 2013 and 2014 = (CPI 2014 - CPI 2013)/CPI 2013 = (114.118 - 100)/(100) = 14.118%

Similarly, inflation rate between 2014 and 2015 = (CPI 2015 - CPI 2014)/CPI 2014 = (120 - 114.118)/(114.118) = 14.118% = 5.154%