We have seen 3 different steps which will show us the clear picture of economy which is created artificially. Fig 5.1 shows quantities in CPI basket along with the main prices in 2010 which is the base years and current year which is 2011. Part A is having data of base year.
Measure inflation rate
The main motive of Consumer Price Index is to measuring the changes which have occurred in living cost along in the value of money. In order to move for measurement in changes part. The calculation is based upon the rate of inflation is taken in annual percentage when CPI changes. The formulas for calculating rate of inflation which is :
Above formulas has been used for the calculation of rate of inflation in the year 2010. 218.8 is the Consumer price index in the year 2010 in June and in the year 2009, it was 215.7. Thus the rate odinflation rate for the period of 12 months was.