Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2012, the basket’s cost was $50; in 2014, the basket’s cost was $52; and in 2016, the basket’s cost was $58. The value of the CPI in 2016 was

Consumer Price Index (CPI) 2016 = 111.54

Explanation:

consumer price index is a measure of price change over a period of time in other words consumer price index is a measure of inflation. A number of good are selected and their prices are monitored each year in order to measured against the base year prices in order to determine  changes in the general price level.

The goods selected represent the spending patterns of the an average consumer in that economy or country. When the price of these goods rise over time when compared to the Basket Cost of the base year we can assume that there is a rise in the general price level

Base year = 2014

Basket's cost 2014= $52

Base cost 2016 = $58

Consumer Price index (CPI) 2016 = Basket costs 2016/base year Basket cost 2014.

Consumer Price index (CPI) 2016 = 58/52 = 1.115384615 x 100

Consumer Price Index (CPI) 2016 = 111.5384615

Consumer Price Index (CPI) 2016 = 111.54

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