THE INSTITUTE OF FINANCE MANAGEMENT

FACULTY OF ACCOUNTING, BANKING & FINANCE

DEPARTMENT OF ACCOUNTING
BACHELOR IN ACCOUNTANCY
YEAR I 2016/2017
ECU 07202-MACROECOOMICS
GROUP ASSIGNMENT (G4-SG 7)
SN NAMES REG NO REMARKS
1 MUSHI, ROLAND .A IMC/BAC/16/91276
2 MCHERECHETA, MOZA .S IMC/BAC/16/69211
3 MNYONE, KAZENIELI .G IMC/BAC/16/91447
4 ALLY, FATMA. O IMC/BAC/16/69830
5 MAYOMBO, ALBERT .F IMC/BAC/16/91990
6 MBAPILA, ELTON E. IMC/BAC/16/90615

QUESTION
Explain the procedures used to calculate inflation rate using consumer price index in a pool of
commodities. Use data from hand book on macroeconomics by Mahona and Kimario, page 75
question number 5.

Consumer Price Index (CPI) measure the price of a selection of goods and services a typical consumer,
this is done when few goods of importance for humans basket are considered. Inflation rate refers is the
rate at which the general level of prices for goods and services is rising.

The following are the procedures to calculate the consumer price index from a pool of commodities
 1. A basket of goods and services consumed by the average family is listed, Example food
2. The price of items in the basket in the base year is noted
3. Each item in the basket is given a number value (weight) to reflects its importance on the
average family, for example food has higher weight than transport
4. The price of goods in the basket is recorded every month compared with base year as a
percentage (price relative) using the equation
Current price
Price index= x 100
Base year
5. The index of each item is then multiplied by its weight
6. The new consumer price index is found using the equation
∑ (Weighting x price index)
CPI=
∑ Weightings
For example the given information below for the year 2013

Category Price index weighting PI x W

Food 104 19 1976

Alcohol and tobacco 110 5 550

Clothing 96 12 1152

Transport 108 14 1512

Housing 106 23 2438

Leisure services 102 9 918

Household goods 95 10 950

Other items 114 8 912

∑ ∑ 100 ∑ 10408

Suppose the price index for the year 2014 is 112.5. What is the inflation rate?

2013 (CPI) =∑ (PI x W)/∑ W, = 10408/100 = 104.08

2014 (CPI) = 112.5

From inflation rate = ((current (CPI) - Previous (CPI))/ previous (CPI)) x 100

((112.5 - 104.08)/104.08) x 100 = 8.03%, Therefore inflation rate will be 8.03%

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