The Consumer price index for Canada in 2007 was 102.6. The base year for the CPI was 2006. If a set of tires cost $440 in 2006 how much would the same set of tires cost in 2007?
A consumer price index is the weighted average prices of certain commodities that are representative of the price of all the commodities in the economy. In the base year when the consumer price index is set up, the value of the CPI is set to 100. In the following years as the value of CPI changes, it gives an indication of the overall prices of commodities in the economy and the level of inflation (or deflation).
In Canada, the base year when the CPI was set up was 2006. The price of tires in 2006 was $440. In 2007, the CPI was 102.6. Assuming the prices of tires rose by the same extent as the CPI, the price of tires in 2007 was $440*102.6/100 = $451.44
The price of tires in 2007 was $451.44
Base year for Establishing Consumer Index = 2006
Price of a Set of Tyre in 2006 (base year)= $440
Consumer Price index for Canada in 2007 = 102.6
Estimated price of the set of tyres in 2007
= Price of tyres in base year * Consumer Price index in 2007 / 100
= $440*102.6/100 = $451.44
Estimated price of the set of tyres in2007 = $451 Approximately