Question

Calculate CPI & inflation rate: CPhasket ( 10) of beet, 20, of chicken

A. Calculate the nominal price of the basket in each year
B. Caloulate the cPifor each year

Answer 1

To calculate CPI and the inflation rate, you need to calculate the nominal price of the basket in each year, calculate the CPI for each year, and then calculate the inflation rate based on the first price index. If you had used the other price index, you would get a different inflation rate.

Step-by-step explanation:

To calculate the Consumer Price Index (CPI) and inflation rate, you need to follow these steps:

1. Calculate the nominal price of the basket in each year by adding up the prices of the items in the basket. For example, in Year 1, the nominal price would be £940 + £970 + £1000 + £1070 = £3980.
2. Calculate the CPI for each year by dividing the nominal price of the basket in each year by the nominal price of the basket in the base year (Year 1 in this case) and multiplying by 100. For example, to calculate the CPI for Year 2, you would divide £3980 by £3980 (the nominal price of the basket in Year 1) and multiply by 100. The CPI for Year 2 would be 100.
3. To calculate the inflation rate based on the first price index, you would find the percentage change in the CPI between two years. For example, to calculate the inflation rate between Year 1 and Year 2, you would find the percentage change in the CPI for Year 2 by using the formula: (CPI Year 2 - CPI Year 1) / CPI Year 1 * 100. If you had used the other price index (based on Year 4 as the base year), you would get a different inflation rate.