Question

Is the CPI a good measure of inflation for you personally? Why or why not?

Answer 1

CPI is calculated by comparing prices of a fixed quantity of basket of goods over a period of time. So, the base year quantities and price becomes the reference point for increase or decrease in prices for the same quantity of goods.

But in reality, with the advent of technology and change in consumer’s preferences, over the years the cost of production varies or people would switch to other newly introduced goods which would affect the accuracy of CPI being calculated.

So CPI is not an accurate measure of inflation