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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%.
- What percentage change in the CPI up until August is accounted for by the changes in the prices of food, clothing, and medical care?
- Given the changes in food, clothing, and medical care, by what percentage did the prices of the other items in the CPI basket change?
- Why did the prices of the other items change?
- What is the probable impact of the change of other items in the CPI basket?
Expert Solution
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.
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