The table shows the quantities in the CPI basket and the prices in 2010, 2011, a

Question

The table shows the quantities in the CPI basket and the prices in 2010, 2011, and 2012. The base year is 2010. The cost of the CPI basket in 2011 prices is $ and the cost of the CPI basket in 2012 prices is $. >>> Answer to 2 decimal places. The CPI in 2011 is and the CPI in 2012 is. >>> Answer to 1 decimal place. The inflation rate in 2012 is percent. >>> Answer to 1 decimal place. >>> If your answer is negative, include a minus sign. If your answer is positive, do not include a plus sign.

Explanation / Answer

Cost of CPI basket in 2010 price ($) = 2 x 0.5 + 5 x 0.75 + 3 x 2 = 1 + 3.75 + 6 = 10.75

This is price index of 100.

(a)

Cost of CPI basket in 2011 price ($) = 2 x 0.75 + 5 x 1 + 3 x 3 = 1.5 + 5 + 9 = 15.50

Cost of CPI basket in 2012 price ($) = 2 x 0.75 + 5 x 0.75 + 3 x 2.5 = 1.5 + 3.75 + 7.5 = 12.75

(b)

CPI, 2011 = (Cost of basket, 2011 / Cost of basket, 2010) x 100 = ($15.5 / $10.75) x 100 = 144.2

CPI, 2012 = (Cost of basket, 2012 / Cost of basket, 2011) x 100 = ($12.75 / $10.75) x 100 =118.6

(c)

Inflation rate = % Change in CPI

Inflation, 2012 = (118.6 / 144.2) - 1 = 0.822 - 1 = - 0.178, or - 17.8%

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