The following data indicate the price indices of lumber (price index for the bas

Question

The following data indicate the price indices of lumber (price index for the base period (1982-1984) =100) during last six years:

Period       Price Index

2001         144.5

2002         179.5

2003         188.2

2004         178.8

2005         171.6

2006         170.6

2008         ?

(a) If the base period (price index = 100) is reset to the year 2001 compute the inflation rate for lumber between 2001 and 2006

(b) If the past trend is expected to continue, how would you estimate the price of lumber in 2008?

Explanation / Answer

Below is the table when we reset 2001 to 100:

For the table we calculated percentage change between each year. Then start with 100 and increase each subsequent year by the percent change that was calculated.

The average inflation rate from 2001 - 2006 is:

(118.06 - 100) / 6 = 3.01%

Year Orig Inflation % change Reset @100 2001 144.5 100.00 2002 179.5 24% 124.22 2003 188.2 5% 130.24 2004 178.8 -5% 123.74 2005 171.6 -4% 118.75 2006 170.6 -1% 118.06

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