consumer price index (cpi). cpi measure of the average rate of price change for a fixed group of...
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Consumer Price Index Consumer Price Index (CPI)(CPI)
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CPI
•Measure of the average rate of price change for a fixed group of goods and services bought by Canadian consumers.•Measures inflation
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Calculating CPI
•Obtained by comparing, through time, the cost of a fixed basket of commodities purchased by Canadian consumers in a particular year•CPI has a base year that everything gets compared to
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CPI• Let’s set our base year in 2000• Our basket of goods has 1 loaf of
bread• This loaf of bread costs $1.00 in
2000. The index value is 100.• In 2001, the bread is now $1.25.
Now, the price index is 125.• In 2002, the bread now costs
$1.31. Now our price index in 2002 is 131.
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Year – Price Index Value
• 2000 – 100• 2001 – 125• 2002 – 131• 2003 – 133• 2004 - 137
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Calculate Inflation Between 2003 & 2004
• (P2 – P1)/P1 x 100• (137-133)/ 133 x 100 = 3%
• CPI this year – CPI last year x 100 CPI last year
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Another example:
• Using inflation to calculate consumer price index
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Calculate the price index
•If index for January 2000 was 119.8 (1990 = 100)
•Inflation between Jan 2000 and Feb 2000 is 2.1%
•Then February index will be:•119.8 x 1.021 = 122.3 (1986=100)
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CPI Exercise
•Year CPI1970 24.21975 34.51980 52.41985 75.01990 93.31995 104.2
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CPI ExerciseA family of four had an income of 18 500 in 1985a) approximately what income would they need in 1995 to have the same standard of living
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CPI ExerciseA)•(104.2-75.0)/75.0 x 100 = 38.93% = inflation between 1985 and 1995
Prices in 1995 = 18500 x 1.3893
= 25702.15
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Another way to get the same answer
Use of cross multiplication:
7575 = 18500
76104.2 ?
104.2 x 18500 ÷75 = 25702.67Due to rounding issues, the answers are slightly different. However, both method/answers are
acceptable.
CPI Income
1985 75 18500
1995 104.2 ?
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http://www.rateinflation.com/inflation-rate/canada-inflation-rate