Question

The steps involved in calculating the consumer price index include, in order:

Answer 1

Answer:

c.  determine the basket, find the prices, compute the basket's cost, choose a base year and compute the inflation rate.

Explanation:

The Consumer Price Index (CPI) is the term that shows the average alteration in prices paid by consumers for the representative basket of goods and services over a given period. Commonly, it is utilized like a estimation of inflation along with GDP deflator. Steps to calculate:

1) Market basket designation: The TCC market basket represents all goods and services purchased by the population for a particular reference. It consists of more than 200 categories and 8 main groups: Food and beverage, housing, clothing, transportation, medical services, recreation, education and communication, and other goods and services.

2) Cost calculation of basket: Once the basket is fixed, the next step in calculating the Consumer Price Index is to find the current and previous prices for all goods and services. This allows you to calculate the cost of the whole basket at any time. The important thing to note here is that the market basket is stable, that is, goods, services, and quantity are not changed. Therefore, it is the only variable that allows you to isolate the effects of price changes over the years.

3) Index calculation: We need to set a base year to really calculate the Consumer Price Index. The base year is a benchmark against which all other years are compared. It can be freely determined, but it is common to keep the same basal year for a few years before moving to a new market for comparison.

4) Inflation Rate Calculation: Finally, the calculated CPI can be used to calculate inflation. To be more precise, inflation is the percentage of changes in the price index from one period to the next.