Question

Imagine you buy five burgers, two books, and a pair of jeans each period. In period 1,

burgers are $5, books are $12, and jeans are $30. In period 2, burgers are $6, books are
$14, and jeans are $28. What is the CPI based on your consumption?

Answer 1

To find the answer, we use the Consumer Price Index (CPI) formula:

CPI = ( Cost of Market Basket in a Given Year / Cost of Market Basket in Base Year ) * 100

In this case, we will assume that the base year is period 1, and the given year is obviously period two.

Now, we simply plug the amounts into the formula:

CPI = ( 6 + 14 + 28 / 5 + 12 + 30 ) * 100

CPI = ( 48 / 47 ) * 100

CPI = 102.13

In other words, the inflation rate for this CPI was 2.13%