using index numbers

Question 2

using CPI to calculate inflation

Answer 2

cpi = cost of basket in current year ÷ cost of basket in base year x 100

Once the index number has been calculated, the percentage difference between two index numbers represents the rate of inflation

inflation rate = new CPI - previous CPI ÷ previous CPI x 100
(Use example on save my exams )

Question 3

how is RPI calculated?

Answer 3

The retail price index (RPI) is calculated in exactly the same way as the CPI
Certain goods and services that are excluded from the CPI are included with the RPI
These include council tax, mortgage interest payments, house depreciation, and other house purchasing costs such as estate agents fees

Question 4

why would the RPI usually be higher than CPI?

Answer 4

Due to the extra inclusions, inflation measured using the RPI is usually higher than the CPI
This is mainly due to its sensitivity to interest rate changes, which affect mortgage interest
It is argued that the RPI is a more accurate indication of a households inflation