Question

Assume a basket of goods contains 2 products balls and bread. The basket contains 20 balls and 30 bunches of bread. Year 2011..Balls cost 18 dollars, bread costs 13 dollars. 2012: Balls cost 19 and bread costs 13.50, 2013: balls cost 19.75, Bread costs 14.25

Using 2011 as the base year calculate the CPI for 2012, 2013. Calculate the inflation rate between 2012 and 2013

I got CPI in 2012 = 104.67, 2013=109.67, inflation rate = 4.78 percent

Answer 1

Answer
The CPI=(cost of the baskett of goods in current dollars /cost of the basket of goods in base year dollars)*100
cost of basket of goods=sum of (P*Q)
CPI in 2011 is 100 by default
CPI in 2012=((20*19+30*13.5)/(20*18+30*13))*100
=104.666667
=104.67
CPI in 2013=((20*19.75+30*14.25)/(20*18+30*13))*100
=109.666667
=109.67
Inflation =(CPI in year 2 - CPI in year 1)/CPI in year 1
inflation in 2012=(104.67-100)/100
=4.67%
inflation in 2013=(109.666667-104.666667)/104.666667
=0.0477707005
=4.78%
The inflation in 2012 is 4.67% and 2013 is 4.78%