Changes in the CPI over time

Changes in the CPI over time - Changes in the CPI over time...

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Unformatted text preview: Changes in the CPI over time As we have just seen, the CPI changes over time as the prices associated with the items in the fixed basket of goods change. In the example just explored, the CPI of Country B increased from 100 to 141 to 182 from time period 1 to time period 3. The percent change in the price level from the base year to the comparison year is calculated by subtracting 100 from the CPI. In this example, the percent change in the price level from the base period (time period 1) to time period 2 is 141 - 100 = 41%. The percent change in the price level from time period 1 to time period 3 is 182 - 100 = 82%. In this way, changes in the cost of living can be calculated across time. Problems with the CPI While the CPI is a convenient way to compute the cost of living and the relative price level across time, because it is based on a fixed basket of goods, it does not provide a...
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