Saturday, September 26, 2009

Consumer Price Index (CPI)

Consumer Price Index (CPI):
  • is a measure estimating the average price of consumer goods and services purchased by households.
  • the percent change in the CPI is a measure estimating inflation.
  • also known as cost of living index.
  • such an index would show how consumer expenditure would have to move to compensate for price changes so as to allow consumers to maintain a constant standard of living.

FORMULA FOR CALCULATING THE INFLATION:

Example:
The formula for calculating the Inflation Rate looks like this:

Inflation Rate = ((B - A) / A) * 100

Lets assume for simplicity,
At 2008, the CPI was 180 and today the CPI is 168, the calculation will be:

Inflation Rate = ((180 – 168) / 168) * 100
                    = (12 / 168) * 100
                    = 0.07143 * 100
                    = 7.14 %





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