How to Measure Inflation: HL only

B & D pages 236-8How to Calculate Inflation: HL onlyPrint pages 2-5,7,81How the Consumer Price Index Is Calculated: 4 stepsFix the Basket: Determine what products are most important to the typical consumer, and weight them by quantity.Collect the price data from a sample of retailers in a certain time period. Compute the Baskets Cost: Use the data on prices to calculate the cost of the basket of goods and services.In the first (base) year, basket cost = 1000.24Calculating the Consumer Price Index and the Inflation Rate: An ExampleStep 1:Survey Consumers to Determine a Fixed Basket of Goods

3Calculating the Consumer Price Index and the Inflation Rate: An Example

Step 2: Find the Price of Each Good in Each Year4Calculating the Consumer Price Index and the Inflation Rate: An Example

Step 3: Compute the Cost of the Basket of Goods in Each Year5Step 4: Choose One Year as the Base Year (2001) and Compute the Consumer Price Index in Each Year2001($8/$8) x 1000 = 10002002($14/$8) x 1000 = 17502003($20/$8) x 1000 = 25006How the Inflation Rate Is CalculatedThe inflation rate is: the percentage change in the price indexes: from the preceding period to the present.

2002: 75%2003: 43%78Calculating the Consumer Price Index and the Inflation Rate: Another ExampleBase Year is 1999, when the basket of goods costs $1,200; so then the CPI ($1200/$1200) x 1000 = 1000.The same basket in 2000 costs $1,236; so then the CPI = ($1,236/$1,200) X 1000 = 1030.Inflation = 1030 1000 x 100 = ?3 percent between 1999 and 2000.89