Consumer Price Index is a measure of the average price of consumer goods and services purchased by household. It is measured by first considering a basket of product and services that are basic or general for household for one period and then compare it with the same basket of another period (It can be another year or another month or another quarter).
There are two basic data needed for constructing CPI, Price data and weighing data. Price data is calculated from a sample of goods, from a sample of locations, from a sample of outlet and for a sample of time. While, weighing data are the estimates of proportion contribution of each good or service to the CPI.
CPI is interpreted based on a reference period; for example, it is set to 100 for year 2000. Now if the value for CPI is 104.75 for year 2001. That means the inflation rate has increased by 4.75
%(104.75 - 100 / 100) * 100 = 4.75 %CPI is very important to consider, since it show how much a household is spending at a particular time for some particular goods and service. It is an indicator for inflation, employer adjusts wages according to it, it is an indicator for economy performance and government changes their policy according to it.
Following are the CPI for last four quarters for SingaporeSource:- (Ministry of Trade And Industry, 2009)Here we can clearly see that the inflation rate is falling slowly from quarter 2to quarter 4 in 2008 but in quarter 1 of 2009 the drop is significant and it dropped to 2.1.
First reason for this drop is the global recession. The reason for lowest CPI in first quarter of 2009 is the drop in crude oil price. In Singapore, the major sectors that contribute for...