ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Example of calculating CPI formula When you divide the current product price total by the past price total, your equation is 8.50 / 6.75 = 1.26. You’d then multiple this total by 100, which would be 1.44 x 100 = 125.9. Subtract this total from 100 to receive your final percentage of change, which is 25.9%.

Detailed explanation-2: -It is based upon the index average for the period from 1982 through 1984 (inclusive), which was set to 100. So a CPI reading of 100 means that inflation is back to the level that it was in 1984, while readings of 175 and 225 would indicate a rise in the inflation level of 75% and 125%, respectively.

Detailed explanation-3: -The current cost of the basket is compared to its cost in the prior year, and then multiplied by 100 to determine the percentage. The calculated CPI is then used to determine the inflation rate.

Detailed explanation-4: -Currently, the reference base for most CPI indexes is 1982-84=100 but some indexes have other references bases. The reference base years refer to the period in which the index is set to 100.0. In addition, expenditure weights are updated every two years to keep the CPI current with changing consumer preferences.