Question

The cost of a typical basket of consumer goods is shown below for six ( 6 ) years. Year Cost of Basket Year Cost of Basket 1 $ 175 4 $ 211 2 $ 183 5 $ 225 3 $ 193 6 $ 236 Required: Calculate the following: 1. The CPI for each year, and the rate of inflation for years 2, 3, 4, 5 and 6. In doing this students with the last name starting with, A to C will use Year 6 as the base year, D to G will use Year 5, H to L will use Year 4, M will use Year 3, N to R will use Year 2, and S to Z will use Year 1. Both the CPI values and inflation rates must be stated to one decimal place. Please use year 6 as base year. thanks.

Answer 1

Year	Cost of basket ($)
1	175
2	183
3	193
4	211
5	225
6	236

Base year is year 6.

CPI = (Cost of basket at current year price / Cost of basket at base year price)*100

CPI of year 1 = (Cost of basket at year 1 price / Cost of basket at year 6 price)*100

CPI of year 1 = (175 / 236)*100

CPI of year 1 = 74.2

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CPI of year 2 = (Cost of basket at year 2 price / Cost of basket at year 6 price)*100

CPI of year 2 = (183 / 236)*100

CPI of year 2 = 77.5

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CPI of year 3 = (Cost of basket at year 3 price / Cost of basket at year 6 price)*100

CPI of year 3 = (193/ 236)*100

CPI of year 3 = 81.8

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CPI of year 4 = (Cost of basket at year 1 price / Cost of basket at year 6 price)*100

CPI of year 4 = (211 / 236)*100

CPI of year 4 = 89.4

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CPI of year 5 = (Cost of basket at year 1 price / Cost of basket at year 6 price)*100

CPI of year 5 = (225 / 236)*100

CPI of year 5 = 95.3

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CPI of year 6 = (Cost of basket at year 1 price / Cost of basket at year 6 price)*100

CPI of year 6 = (236 / 236)*100

CPI of year 6 = 100

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Inflation rate in year 2 = [(CPI of year 2 - CPI of year 1) / CPI of year 1]*100

Inflation rate in year 2 = [(77.5 - 74.2) / 74.2]*100

Inflation rate in year 2 = 4.4%

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Inflation rate in year 3 = [(CPI of year 3 - CPI of year 2) / CPI of year 2]*100

Inflation rate in year 3 = [( 81.8- 77.5) / 77.5]*100

Inflation rate in year 3 = 5.5%

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Inflation rate in year 4 = [(CPI of year 4 - CPI of year 3) / CPI of year 3]*100

Inflation rate in year 4 = [( 89.4- 81.8) / 81.8]*100

Inflation rate in year 4 = 9.3%

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Inflation rate in year 5 = [(CPI of year 5 - CPI of year 4) / CPI of year 4]*100

Inflation rate in year 5 = [( 95.3- 89.4) / 89.4]*100

Inflation rate in year 5 = 6.6%

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Inflation rate in year 6 = [(CPI of year 6 - CPI of year 5) / CPI of year 5]*100

Inflation rate in year 6 = [( 100- 95.3) / 95.3]*100

Inflation rate in year 6 = 4.9%