There are three goods in the consumer basket. The fixed quantities are these goo

Question

There are three goods in the consumer basket. The fixed quantities are these goods, which the consumer buys, are as follows: Food=60 units, Movies=40 units, and Clothing=90 units. Over a four-year period, the prices of these goods, PF, PM and PC (in dollars) are given below:
Year Price of Food (PF) Price of Movies (PM) Price of Clothing (PC)
1991           15                      14                              25
1992           16                       15                             26
1993             17                      16                             30
1994            20                       17                              32
Assume that 1992 is the base year.

1) Calculate the Consumer Price Index for each of the four years.
2) Calculate the annual inflation rate over the period, starting with 1992, compared to the year before.

Explanation / Answer

1) 95.12820513 100 111.7948718 122.0512821 Just sum the products of the amounts of the goods and their prices in order to get the total cost of the basket in each year. Then, divide each of the total costs by the total cost in 1992 because 1992 is the base. 2) Annual inflation rates are just the current CPI minus the previous CPI. - 4.871794872 11.79487179 10.25641026

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