Question

What are the steps involved in calculating the consumer price index and the inflation rate?

Answer 1

To calculate the Consumer Price Index (CPI) and inflation rate, follow these steps: select a basket of goods and services, collect their prices in a base year and current year, calculate the cost of the basket in both years, divide the current year's cost by the base year's cost and multiply by 100 to get the CPI, and calculate the inflation rate by comparing the CPIs.

Step-by-step explanation:

Steps to Calculate the Consumer Price Index (CPI) and Inflation Rate:

1. Select a basket of goods and services that are representative of the average consumer's purchases.
2. Collect the prices of these items in a base year.
3. Collect the prices of the same items in the current year.
4. Calculate the cost of the basket in the base year and the current year.
5. Divide the cost of the basket in the current year by the cost in the base year and multiply by 100 to get the CPI for that year.
6. To calculate the inflation rate, subtract the CPI of the base year from the CPI of the current year, divide the result by the CPI of the base year, and multiply by 100.