Question

Using the data in the table below, calculate the CPI and the inflation rate in each year using 2005 as the base year.

Instructions: Round your answers to one decimal place.
  

Year	Price of basket ($)	CPI	Inflation rate
2005	20,000		—
2006	21,500
2007	22,800
2008	26,150
2009	28,825
2010	32,700

Answer 1

Ans:

CPI = (Cost of basket in current year / Cost of basket in base year) × 100

Inflation rate = % change in CPI.

Calculation of CPI and the inflation rate

Year	Price of basket	CPI	Inflation rate
2005	$20,000	($20,000 / $20,000) * 100 = 100	-
2006	$21,500	($21,500 / $20,000) * 100 = 107.5	(107.5 - 100)/100 = 7.5%
2007	$22,800	($22,800 / $20,000) * 100 = 114	(114 - 107.5)/107.5 = 6.05%
2008	$26,150	($26,150 / $20,000) * 100 = 130.7	(130.7 - 114)/114 = 14.6%
2009	$28,825	($28,825 / $20,000) * 100 = 144.1	(144.1 - 130.7)/130.7 = 10.2%
2010	$32,700	($32,700 / $20,000) * 100 = 163.5	(163.5 - 144.1)/144.1 = 13.5%