Consumer Price Index

Prepared by :-
Shweta upadhyay
Gaurav ranjan aggarwal
INTRODUCTION
 Consumer price index

Definition:  It measures the change in price of a

fixed market basket of goods and services from one
period to another.

CPI an inflatory indicator that measures the

change in the cost of a fixed basket of product and
services including housing,electricity,transport and
food.
 The CPI is computed through a four-step
process:
1.The fixed basket of goods and services is
defined. This requires figuring out where the
typical consumer spends his or her money.The
Bureau of Labor Statistics surveys consumers to
gather this information.

2.The prices for every item in the fixed basket are

found. Since the same basket of goods and
services is used across a number of time
periods to determine changes in the CPI, the
price for every item in the fixed basket must be
found for every point in time.
3.The cost of the fixed basket of goods and
services must be calculated for each time period.
Like computing GDP, the cost of the fixed basket
of goods and services is found by multiplying the
quantity of each item times its price.

4.A base year is chosen and the index is

computed. The price of the fixed basket of goods
and services for each comparison year is then
divided by the price of the fixed basket of goods
in the base year. The result is multiplied by 100 to
give the relative level of the cost of living between
the base year and the comparison years.
Methods of constructing the index:-

1.Aggregate Expenditure method

2. Family budget method

 Uses of Consumer Price Index

Apart from measuring inflation, the index is useful

in indicating the need to adjust:
Wages to keep pace with a rise in the cost of
living
Pensions
Regulated prices
Tax brackets to avoid increases in the rate of
taxes induced by inflation
Advantages and disadvantages of CPI:

Advantages:
• It determines the rate of inflation. A high annual
percentage increase in the CPI reflects a high
rate of inflation.
• The CPI also determines the percentage of
annual increase or decrease in income.
• The federal government also uses the CPI to
adjust Social Security and disability benefits, to
determine the income level at which people
become eligible for assistance,and to establish
tax brackets.
 Disadvantages:
• It changes over time (consumer goods in
the 1970s are not the same as they are in
the 1990s).
• It overstates inflation, because it fails to
account for improvements in technology.
• The changes in the quality of goods and
services are not well handled by CPI.
DATA ANALYSIS AND
INTERPRETATION
ALL INDIA CONSUMER PRICE INDEX NUMBERS
FOR INDUSTRIAL WORKERS ON BASE 2001=100
FOR THE MONTH OF AUGUST 2010
JULY 2010 AUGUST 2010

178 178

 All India comsumer price Index number for

Industrial workers(CPI-IW) on base 2001=100 for
the month of August 2010 remained stationary at
178.
 CPI of six major centres
Ahmadabad 173 Delhi 164

Bangalore 182 Kolkata 175

Chennai 161 Mumbai 175

CPI
185
180
175
170
165
160
155
150
Ahmedabad Delhi Bangalore Kolkata Chennai Mumbai
Group UNME Linked Index for %age
weight index for August 2009 change
August
2010
Food, beverages, 47.13 721 660 9.2
tobacco

Fuel and light 5.48 711 637 11.6

Housing 16.41 824 681 21.0

Clothing, bedding and 7.03 505 479 5.4
footwear

Miscellaneous 23.95 612 583 5.0

General index(all 100.00 696 631 10.3

groups)

Linked All India CPI for August 2010

Article Rice Wheat Arhar dal Mustard oil Milk Sugar
Unit Kg. Kg. Kg. Litre Litre Kg.
Delhi 13.78 7.60 71.53 60.75 27.66 30.78
Bangalore 28.35 20.02 71.04 - 21.00 29.30
Mumbai 28.64 19.92 72.86 70.18 36.59 31.09
Kolkata 26.70 15.64 84.50 69.80 30.50 28.90
Tripura 15.15 11.63 - 65.00 25.60 29.42
Chennai 16.54 31.42 68.80 - - 19.10
Coimbatore 13.26 33.50 71.55 - 23.25 21.98

Table showing price variations of the same product in different parts of India
Index number Base year All India General Index

July 2010 August 2010

Consumer Price Index Numbers for 2001=100 178 178

Industrial Workers-CPI(IW)

August 2010 September 2010

Consumer Price Index Numbers for 1986- 557 562

Agricultural Laborers 87=100

Consumer Price Index Number for 1986- 556 562

Rural laborers 87=100

CPI for different class of people of India

 CONCLUSION
 The overall CPI for industrial workers has
remained constant and for industrial
workers and rural workers has increased
a bit.

The inflation rate has come down but

prices of general goods and commodities
are still soaring.
 CPI in recent months
Period Inflation
August 2010 9.877%
July 2010 11.250%
June 2010 13.725%
May 2010 13.908%
April 2010 13.333%
March 2010 14.865%
February 2010 14.865%
January 2010 16.261%
December 2009 14.966%
November 2009 13.514%
 Inflation
18

16

14

12

10

8 Inflation

0
'1
0
' 10 ' 10 y'10 ' 10 ' 10 ' 10 ' 10 ' 09 ' 09
G UL N a R R B N C V
U J JU M A P A F E J A E O
A M D N
 CPI in recent years
Period Inflation
August 2010 9.877%
August 2009 11.724%
August 2008 9.023%
August 2007 7.258%
August 2006 5.939%
August 2005 3.448%
August 2004 4.609%
August 2003 3.099%
August 2002 3.863%
August 2001 5.192%
 Most recent inflation figure is 9.877%

Inflation
14.00%
12.00%
10.00%
8.00%
6.00% Inflation

4.00%
2.00%
0.00%
/ 10 / 09 / 08 / 07 / 06 / 05 / 04 / 03 / 02 / 01
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 BIBILIOGRAPHY
 Books
Buisness statistics by S.P. gupta, M.P.gupta
 Websites
official website of Labour bureau,Government of
India.
Google.com
Wikipedia
Globalrates.com
Thank you!