CPI: Consumer Price Index

CPI Definition A measure of the average of prices paid by urban consumers for a fixed basket of consumer goods and services More importantly in a practical sense the CPI tells you what has happened to the value or purchasing power of the money in your pocket and provides a basis of prediction of what you can expect to happen to it in the future

Constructing the CPI Fixed Basket Average prices The CPI basket is aimed to be the same as the budget of an average urban household Average prices Each Qtr the ABS effects a the quarterly price survey MUST compare apples with apples

Reading CPI Numbers The CPI is defined to equal 100 in the reference base period The current reference base period is 1989/90. Latest CPI for December 2009 is 169.5 ie the average price paid in December Qtr 2009 was 69.5% higher than that paid on average during 1989/90. Dec 08 the index was 166.0 CPI increase was (169.5-166.0)/166.0=2.1%

Calculating the CPI ....... To calculate we need to know: Find the cost of the CPI Basket at base period prices Find the cost of the basket at current prices

......... Calculating the CPI CPI = Cost of Current Basket x 100 Cost of Base Basket Assume Cost of Base Basket is 100 Cost of Current Basket is 110 Calculate CPI for Base Period Calculate CPI for Current Period http://www.abs.gov.au/ausstats/abs@.nsf/mf/640 1.0