CONSUMER PRICE INDEX
The consumer price index measures the amount of money which consumer of a particular class have to pay to get a basket of goods & services at a particular point of time in comparison to what they paid for the same in the base period.
Different classes of people consume different types of commodities & even that same type of commodities are not consumed in the same proportion by different classes of people (for e.g. higher class, middle class, lower class). The general indices do not highlight the effects of change in prices of a various commodities consumed by different classes of people on their cost of living.
The consumer price index is also known as cost of living index or retail price index.
Methods of Constructing Consumer Price Index The consumer price index can be constructed by any of the following two methods :
(1) Aggregate Expenditure Method or Aggregative Method
(2) Family Budget Method or the Method of Weighted Relatives
|1. What is the Consumer Price Index (CPI)?|
|2. How is the CPI calculated?|
|3. What is the purpose of using index numbers in the CPI?|
|4. How is the CPI used to calculate inflation rates?|
|5. What are the limitations of the CPI as a measure of inflation?|