Calculating the Consumer Price Index and Inflation Rate

Step 1: Survey Consumers to Determine a Fixed Bas et of !oods " hot dogs# $ ham%urgers Step $: Find the Price of &ach !ood in &ach 'ear
Year 2001 2002 2003 P HOT DOGS $1 $2 $3 P HAMBURGERS $2 $3 $4

Step (: Compute the Cost of the Bas et of !oods in &ach 'ear

2001 2002 2003 ($1 per hot dog ($2 per hot dog ($3 per hot dog 4 hot dog!" # ($2 per ha$% 4 hot dog!" # ($3 per ha$% 4 hot dog!" # ($4 per ha$% 2 ha$%" & $' 2 ha$%" & $14 2 ha$%" & $20

Step ": Choose )ne 'ear as a Base 'ear *$++1, and Compute the CPI 2001 2002 2003 ($'($'" 100 & 100 ($14($'" 100 & 1)* ($20($'" 100 & 2*0

Step -: .se the CPI to Compute the Inflation Rate from Previous 'ear
2002 2003 (1)* + 100"(100 (2*0 + 1)*"(1)* 100 & )*, 100 & 43,