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Homework answers / question archive / CPI: Inflation Picks Up According to the BLS, the CPI rose 3
CPI: Inflation Picks Up
According to the BLS, the CPI rose 3.8% in August of this year compared to a year earlier. Food prices rose 4.6% and clothing prices were up 4.2%, while new car prices rose 3.8%, and medical care was up 3.2%.
a.)
It is assumed that equal weightage four all four items.
So,
Required changes= 3.8- 0.25 (car)
= 3.8- 0.25*(3.8%)
= 3.8-0.95
= 2.85
So,
2.85% out of 3.8% rise in CPI, was due to changes in the prices of food, clothing and medical care.
b.)
Change in other items= 0.25* (car)
= 0.25* 3.8%
= 0.95
c.)
The price of other items changed because of inflation as a whole in the economy.
d.)
The probable impact of the change of other items in the CPI basket is there will be rise in CPI and fall in consumption basket of the consumer.