The Consumer price index

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The consumer price index is a weighted price which measures the monthly change in goods and services. The spending patterns on which the index is weighted are revised each year, information is usually taken from the family expenditure survey. Higher income households and pensioners are not included. The changes in category weighting reflects a significant shift in the spending patterns of households in the U.K

.) The rate of inflation is the % change in the price index from one year to another. If in 2009 the price index is 104.1 and in 2010 the price index has risen to 112.5, then the annual rate of inflation = (112.5 - 104.1) divided by 104.1 then x 100. In this case the rate of inflation would be = 8.07%.

The CPI inflation for one item is calculated by taking the updated cost of the product and dividing it by the base price of the product then multiplying this figure by 100.

To calculate the C.P.I for multiple items are calculated by adding up the prices of all of the items in the month from the number of stores, rental units are added together and averaged. This figure is weighted into the categories in the CPI e.g Housing 40%, Food and Non-Alcoholic Beverages 20%, Taxes are at 43% but not calculated.
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The C.P.I is split into 12 categories including food and non alcoholic drinks, clothing and footwear and housing. A typical household spends around 30% of their income on transport (15%) , recreation (15%) , 20% of their income on housing, water and fuel (10%) and food and non alcoholic drinks (10%). Health and education make up around 5% of a typical household spending.

2.) When choosing representative items for the basket a number of factors are taken into account. The items need to be easy to find by the price collectors so that price change estimates ...

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