How To Calculate CPI
How many pounds did milk cost in 2006?
Hi. My name is Grant Hobson. I work as a Finance Analyst, and today I'm going to talk you through some British marks, calculations and ratios. How to calculate a Consumer Price Index (CPI) and CPI is the UK's inflation rate for consumer prices. It's based on what's supposed to be an average basket of goods for an urban consumer, and the government takes about 600 goods the firmest and it's all about being the same good over a period of time from the location just to see the movement in the price, and we'll demonstrate this in the calculation now. So to demonstrate the consumer price index, we'll take 2 goods, we'll take study text and we'll take milk. Now, what we're interested in the movement is the price of these goods over a period of time. So in this case, if we take 3 years, so you have a base here which is that's why you're always comparing to, in this, it will be 2004. We're going to go through 2006 and work out what a consumer price index is for that period. So if in 2004, obviously the tax is 18 pounds and the price of two litres of milk with a pound, then once tap this through. So in 2005, the same study tax, same area, same shop was 21.50 pounds and by 2006, this will become 23 pounds. In terms of milk, milk had gone from 1 pound in 2004 to 1.50 pounds in 2005 and 2 pounds in 2006. So what we're going to do is calculation, is basically compare the base rate and what is also the cost of these goods in 2004, and get the difference from that to what they cost in 2006. So if you take the quantity of study text, there had been 2 boxes that we had bought and milk, we bought 10 items of milk. So in 2004, this cost 5 to 6 pounds which is basically 2, buy you 18, push it 10, and buy you 1 pound. You see you just take the same quantity, then just take the price from the next year, same quantity and price from the next year. You'll see we've had a 20-pound increase in the cost and you want to know likewise in terms of CPI. You basically do 66 pounds in 2006 and divide that by your base which will be plus 6 pounds, gives you 1.43 which is then times by 100, will make us offer the CPI. So, the new consumer price in that is 143. .