CPI

1. FOOD PRICE INDEX

2. Food price index
“The FAO food price index is the measure of monthly
change in the international prices of basket of food
commodities
It consists of average of five commodity group price
indices, weighted with the average export share of
each of the groups for 2002-2004” -FAO

3. The food price index
averaged averaged 196.6
points in August 2014, its
lowest level since
September 2010. In
August, the index
registered its fifth
consecutive monthly
decline, down 7.3 points
(3.6 percent) from July
and 7.9 points (3.9
percent) from August
2013.

4. The five commodity group indices are :
The FAO cereal price index averaged 182.5 points
in August, down 2.8 points (1.5 percent) from July
and 24.2 points (11.7 percent) from August 2013.
The FAO Vegetable Oil Price Index averaged
166.6 points in August, 14.5 points (8 percent) less
than the previous month and the lowest level since
November 2009.

5. The FAO Dairy Price Index averaged 200.8
points in August, down 25.3 points (11.2 percent)
over July and 46.8 points (18.9 percent) less year-on-
year.
The FAO Meat Price Index averaged 207.3 points
in August, 2.5 points (1.2 percent) more than its
revised value for July and 25 points (14 percent)
above last year.

6. The FAO Sugar Price Index averaged 244.3
points in August, down by 14.8 points (5.7 percent)
from July, but still 2.2 points (1 percent) higher than
in August 2013.

7. CONSUMER PRICE INDEX

8. WHAT IS A PRICE INDEX?
P rice Index is a normalized average of
prices for a given class of goods or
services in a given region, during a
given interval of time

9. Consumer Price Index
Definition: The consumer price index (CPI) is a measure of
the changes in the average price of goods and services that
consumers normally purchase such as food, clothing,
medicals and others. CPI is also a measure that indicates
changes in the general price level from the base year to the
current year.
There is an inverse relationship between the general price
level and the value of money. The value of money is the
purchasing power of the consumer, or the ability to buy
goods and Services. When the general price level is higher,
the value of money will be lower and vice versa.

10. Generally accepted as a measure of inflation in the country
• It measures Price changes of fixed market basket of goods and
services of constant quality and quantity.
• It tells how much cost of living has risen or fallen due to price
changes irrespective of changes in consumer behavior or
quality of goods.
• It does not reflect the cost of living or in house hold
consumption expenditure as such but only the influence of
price fluctuation on the trend.
Main measure of price changes at the retail level
Measures changes in the cost of buying a
representative fixed basket of goods and services

11. Measurement of CPI
The measurement of CPI is based on the collection
and compilation of average price of goods and
services in the market. The measurement is based
upon 4 Steps.
Step 1: Selection of the Base Year:
The reference base period is when the CPI is defined as 100
for a period. Price changes in other years will be in
reference to this base year and expressed as a percentage.
The base year selected is a normal year in which the
economy and prices are stable.

12. CPI Measurement
Step 2: Selection of CPI Basket
The next step is to select the CPI basket. The term
basket refers to the goods and services
represented in the index and the relative
importance attached to each of the items. This
item reflects the typical consumption of a general
household.

14. CPI Measurement
Prices of selected goods in the CPI basket must be obtained
through reliable sources. The basket is valued at a base year
price. Then, the same basket willbe valued at a current year
price. The current year price index can be obtained
using the following formula:
Current year index = Current year price x 100
Base year price
The base year index is equal to 100.

15. CPI Measurement
ITEM BASE YEAR
PRICE
1
CURRENT
YEAR PRICE
2
CURRENT
YEAR INDEX
2/1 x 100
Food 150 240 240/150*100=160
Apparel 300 420 420/00*100=140
Medical Care 250 200 200/250*100=80
Transportation 160 180 180/160*100=112.
5
Simple CPI= Sum of all current year index/ Number of items 492.5/4=123.1
Therefore, the general price level or costs have increased by 23.1 per
cent
(123.1- 100) from the base year to the current year.

16. CPI Measurement
Step 4:Weightage
Weightage is the figure used to measure the importance of
the item in the basket depending on the amount of money
spent by the consumer on each item. The highest weightage
shows the most important commodity and the lowest shows
the least important commodity for the consumer. For
example, if the weightages for food and transportation are 4
and 1 respectively it shows that food is more important
since the amount of money spent on food is 4 times more
than transportation.
Assume that weights are given in respect of the items in
Table . The weighted CPI can be calculated as shown in the
next give Table .

17. CPI Measurement
ITEM BASE
YEAR
PRICE
1
CURRENT
YEAR
PRICE
2
CURRENT
YEAR
INDEX
2/1 x 100
WEIGHTS
4
WEIGHT
ED PRICE
INDEX
3x4
Food 150 240 240/150*10
0=160
4 160x4=640
Apparel 300 420 420/00*10
0=140
3 140x3=420
Medical
Care
250 200 200/250*1
00=80
1 80x1=80
Transportat
ion
160 180 180/160*10
0=112.5
2 112.5x2=22
5
Weighted CPI= Sum of all weighted price index/
Total Weights
10 1365/10=
136.5
This shows that the general price level has increased by 36.5 per cent
compared to the base year.

18. Formulas Used in Calculation CPI:

19. CPI – A DEEPER UNDERSTANDING
•The Indian CPI shows the change in prices of a standard package
of goods and services which Indian households purchase for
consumption.
•When we talk about the rate of inflation in India, this often refers
to the rate of inflation based on the consumer price index, or CPI
for short.
•In order to measure inflation, an assessment is made of how much
the CPI has risen in percentage terms over a give period compared
to the CPI in a preceding period. If prices have fallen this is called
deflation (negative inflation).
Consumer Price Index (CPI) in India is reported by the
Ministry of Statistics and Programme Implementation
(MOSPI), India

20. Consumer Price Index (CPI) in India averaged 124.27 Index Points from 2011 until 2014,
reaching an all time high of 143.70 Index Points in July of 2014 and a record low of 105 Index
Points in February of 2011.
As of September 17, 2014, the consumer price index fell by 0.2%, this is the first decline since
April 2013. Excluding food and energy, core CPI went nowhere, the first unchanged reading
since October 2010.
"While the shelter index increased and the indexes for new vehicles and for alcoholic beverages
also rose, these advances were offset by declines in several indexes, including airline fares,
recreation, household furnishings and operations, apparel, and used cars and trucks," noted the
BLS.
On a year-over-year basis, both CPI and core-CPI climbed by just 1.7%, which was below the
1.9% expected.
All of this gives the Federal Reserve flexibility to keep monetary policy easy and interest rates
low for a long time.

21. Chart – current CPI inflation India (yearly basis)
– last 12 months

23. Reference
food and agriculture organisation of the united
nations
http://www.fao.org/worldfoodsituation/foodpricesi
ndex/en/
Wikipedia
Investopedia
Business standard.com