Question

Find out the consumer price index(CPI) and the inflation rate for the information given below:
Base year is 2016
Basket of goods in 2016 costs 3550 DHS
Basket of goods IN 2017 costs 3850 DHS
Basket of goods IN 2018 costs 4550 DHS

Find out:
CPI for 2016
CPI FOR 2017
CPI for 2018

Using these information above find out the following
(i) price increase inflation rate between 2016 and 2017
(ii) price increase inflation rate between 2017 and 2018

Answer 1

(a)

Formula

CPI for Year X = [(Cost of basket of goods in Year X)/(Cost of basket of goods in Base Year)]*100

Here base year 2016

(i)

CPI for 2016 = [(Cost of basket of goods in Year X)/(Cost of basket of goods in Base Year)]*100

= [(Cost of basket of goods in Year X)/(Cost of basket of goods in 2016)]*100

= (3550 DHS / 3550 DHS)*100

= 100

Hence, CPI for 2016 = 100

(ii)

CPI for 2017 = [(Cost of basket of goods in Year 2017)/(Cost of basket of goods in Base Year)]*100

= [(Cost of basket of goods in Year 2017)/(Cost of basket of goods in 2016)]*100

= (3850 DHS / 3550 DHS)*100

= 108.45

Hence, CPI for 2017 = 108.45

(iii)

CPI for 2018 = [(Cost of basket of goods in Year 2018)/(Cost of basket of goods in Base Year)]*100

= [(Cost of basket of goods in Year 2018)/(Cost of basket of goods in 2016)]*100

= (4550 DHS / 3550 DHS)*100

= 128.17

Hence, CPI for 2018 = 128.17

(b)

(i)

Inflation rate = (Change in Price level / Initial price level)*100

As Price level is represented by CPI thus, Inflation rate = (Change in Price CPI / Initial CPI)*100

Thus, Inflation rate between 2016 and 2017 = ((CPI for 2017 - CPI for 2016) / CPI for 2016)*100

= ((108.45 - 100)/100)*100 = 8.45%

Hence, Inflation rate between 2016 and 2017 = 8.45%.

(ii)

Inflation rate = (Change in Price level / Initial price level)*100

As Price level is represented by CPI thus, Inflation rate = (Change in Price CPI / Initial CPI)*100

Thus, Inflation rate between 2017 and 2018 = ((CPI for 2018 - CPI for 2017) / CPI for 2017)*100

= ((128.17 - 108.45)/108.45)*100 = 18.18%

Hence, Inflation rate between 2017 and 2018 = 18.18%