Question

	Price of Bread (per loaf)	Price of toilet paper (per package)	Price of shoes (per pair)
2005	$1.00	$4.00	$30
2006	$1.50	$5.00	$35
2007	$2.00	$5.25	$37.50

We buy 5 loaves of bread, 2 packages of toilet paper and 1 pair of shoes in each year. Spending on this basket in 2005 is $43 and the CPI is 100. The base year is 2005.

1. Spending in 2006                                                                                  ________________
2. Spending in 2007                                                                                  ________________
3. CPI in 2006                                                                                           ________________
4. CPI in 2007                                                                                           ________________
5. Inflation 06-07                                                                                      ________________

Answer 1

A) Spending in 2006

Spending = (1.50x5) + (5.00x2) + (35x1)

Spending = 7.50 + 10 + 35

Spending = 52.50

B) Spending in 2007

Spending = (2.00x5) + (5.25x2) + (37.50x1)

Spending = 10 + 10.50 + 37.50

Spending = 58

C) CPI in 2006

CPI = Spending of current year / Spending of Base Year x 100

CPI = 52.50 / 43 x 100

CPI = 122.09

D) CPI in 2007

CPI = Spending of current year / Spending of Base Year x 100

CPI = 58 / 43 x 100

CPI = 134.88

E) Inflation 2006 - 2007

Inflation Rate = CPI of 2007 - CPI of 2006 / CPI of 2006 x 100

Inflation Rate = 134.88 - 122.09 / 122.09 x 100

Inflation Rate = 10.47%