Inflation calculation

Year 1 ( Base year)

Good            Average price       % of income spent by household     Weighted Average price      Index
A                      50                                          20                                  20%of50 = 10
B                       25                                         20                                  20%off25 = 5                      100
C                       100                                      60                                    60%of 100 = 60
                                                  Total  = 100                                    Total weighted
                                                                                                   Average price of base year is       
                                                                                                      10+5+60 = 75


Year 2 ( Current year)

Good     Average price           % of income spent by household      Weighted Average price     Index
A              60                                  30                                                     30%of60 = 18
B              45                                  20                                                     20%of 45 = 9                      ?
C          110                                    50                                                      50%of 110 = 55
                                                      Total = 100                                       Total weighted
                                                                                                    Average price of  year2 is
                                                                                                               18+9+55 = 82
 INDEX OF YEAR 2 = Weighted average price of year2/weighted average price of base year x 100
                                    =   82/75 x 100
                                   = 109.3
Therefore Inflation rate = 109.3 - 100
                                      = 9.3%

- Family Expenditure survey
- Basket of goods
- Weighting
-Base year
- Comparing base year and current year