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Other composite price indexes

30 December, 2015 - 09:55

The fuels price index is just one of many indexes constructed to measure a composite group of economic variables. There are also published indexes of commodity prices, including and excluding fuels, agricultural prices, average hourly earnings, industrial production, unit labour costs, Canadian dollar effective exchange rate (CERI), the S&P/TSX stock market prices and consumer prices to list just a few. All these indexes are designed to reduce the complexity of the data on key sectors of the economy and important economic conditions.

The consumer price index (CPI) is the most widely quoted price index in the economy. It measures the average price level in the economy and changes in the CPI provide measures of the rate at which consumer goods and services change in price—inflation if prices increase, deflation if prices decline.

The CPI is constructed in two stages. First, a consumer expenditure survey is use to establish the importance or weight of each of eight categories in a ‘basket’ of goods and services. Then the cost of this basket of services in a particular year is compared to its cost in the chosen base year. With this base year cost of the basket set at 100 the ratio of the cost of the same basket in any other year to its cost in the base year multiplied my 100 gives the CPI for that year. The CPI for any given year is:

CPI_{t} = \frac{Cost\ of\ basket\ in\ year\ t}{Cost\ of\ basket\ in\ base\ year}X100

(2.4)

\mid Consumer price index: the average price level for consumer goods and services

\mid Inflation rate: the annual percentage increase in the consumer price index

\mid Deflation rate: the annual percentage decrease in the consumer price index