4 Measuring The Cost Of Living
MEASURING THE
COST OF LIVING
Introduction
• Few years after the independence of Tunisia, the income per capita was around 50 TD. Today, it is well over 5000 TD.
• To compare the two figures, we need to find some way of turning dinar figures into meaningful measures of purchasing power. • That is exactly the job of a statistic called the consumer price index (CPI).
• The CPI is used to monitor changes in the cost of living over time. When the CPI rises, the typical family has to spend more to maintain the same standard of living.
• Inflation describes a situation in which the economy’s overall price level is rising. Economists measure the inflation rate by the consumer price index
THE CONSUMER PRICE INDEX
• The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.
• The first step in computing the CPI is to determine which prices are most important to the typical consumer. • If the typical consumer buys more pf good A than good B, then the price of A is more important than the price of B and, therefore, should be given greater weight in measuring the cost of living.
• The INS sets the weights by surveying consumers and finding the basket of goods and services that the typical consumer buys.
CALCULATING THE CPI AND THE INFLATION RATE
• STEP 1: SURVEY CONSUMERS TO DETERMINE A
FIXED BASKET OF GOODS.
• STEP 2: FIND THE PRICE OF EACH GOOD IN
EACH YEAR.
• STEP 3: COMPUTE THE COST OF THE BASKET
OF GOODS IN EACH YEAR.
• STEP 4: CHOOSE ONE YEAR AS A BASE YEAR
AND COMPUTE THE CPI IN EACH YEAR.
• STEP 5: USE THE CPI TO COMPUTE THE
INFLATION RATE FROM PREVIOUS YEAR.
What Is in the CPI’s Basket?
• INS tries to include all the goods and services that the typical consumer buys.
• Moreover, it tries to weight these goods and services according to how much consumers buy of each item.
•
•
•
•
•
PROBLEMS IN MEASURING THE COST OF LIVING
The goal of the CPI is to measure changes in the cost of living. It tells how much incomes
COST OF LIVING
Introduction
• Few years after the independence of Tunisia, the income per capita was around 50 TD. Today, it is well over 5000 TD.
• To compare the two figures, we need to find some way of turning dinar figures into meaningful measures of purchasing power. • That is exactly the job of a statistic called the consumer price index (CPI).
• The CPI is used to monitor changes in the cost of living over time. When the CPI rises, the typical family has to spend more to maintain the same standard of living.
• Inflation describes a situation in which the economy’s overall price level is rising. Economists measure the inflation rate by the consumer price index
THE CONSUMER PRICE INDEX
• The CPI is a measure of the overall cost of the goods and services bought by a typical consumer.
• The first step in computing the CPI is to determine which prices are most important to the typical consumer. • If the typical consumer buys more pf good A than good B, then the price of A is more important than the price of B and, therefore, should be given greater weight in measuring the cost of living.
• The INS sets the weights by surveying consumers and finding the basket of goods and services that the typical consumer buys.
CALCULATING THE CPI AND THE INFLATION RATE
• STEP 1: SURVEY CONSUMERS TO DETERMINE A
FIXED BASKET OF GOODS.
• STEP 2: FIND THE PRICE OF EACH GOOD IN
EACH YEAR.
• STEP 3: COMPUTE THE COST OF THE BASKET
OF GOODS IN EACH YEAR.
• STEP 4: CHOOSE ONE YEAR AS A BASE YEAR
AND COMPUTE THE CPI IN EACH YEAR.
• STEP 5: USE THE CPI TO COMPUTE THE
INFLATION RATE FROM PREVIOUS YEAR.
What Is in the CPI’s Basket?
• INS tries to include all the goods and services that the typical consumer buys.
• Moreover, it tries to weight these goods and services according to how much consumers buy of each item.
•
•
•
•
•
PROBLEMS IN MEASURING THE COST OF LIVING
The goal of the CPI is to measure changes in the cost of living. It tells how much incomes