Question

1. The typical household buys these basket goods

	Quantities	2017	2018	2019
Toothpaste	10	2.99	2.85	3.15
Shampoo	5	5.99	5.96	6.99
Soap	15	3.15	3.00	3.50
Price of the basket
CPI

1. Fill in the missing value using 2018 as the base year
2. Calculate the inflation rate from 2017 to 2018
3. Calculate the inflation rate from 2018 to 2019

Answer 1

a) Price of the basket in 2017 = 10*2.99+5*5.99+15*3.15 = 29.9+29.95+47.25 = 107.1

Price of the basket in 2018 = 10*2.85+5*5.96+15*3 = 28.5+29.8+45 = 103.3

Price of the basket in 2019 = 10*3.15+5*6.99+15*3.50 = 31.5+34.95+52.5 = 118.95

CPI in 2017 = 107.1/103.3*100 = 103.67

CPI in 2018 = 103.3/103.3*100 = 100

CPI in 2019 = 118.95/103.3*100 = 115.15

b) Inflation from 2017 to 2018 = 100-103.67/103.67*100 = -3.54%

c) Inflation from 2018 to 2019 = 118.95-100/100*100 = 18.95%