Consumers Price Index, PPP

8/11/2019 Consumers Price Index, PPP

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CONSUMERS PRICE INDEX : CPI Consumers Price Index is the statisticalmeasure of the average percentage inthe retail prices of fixed market basketof goods and services customarilypurchased by a specific group ofconsumer in a specific time and place.

Steps in the Computation of the CPI Fix the basket Find the Prices Compute the baskets cost

Choose the base year and compute theindex Choose the appropriate formula to be

use


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Uses of CPI Determines the following :

Price Level Changes qualitatively and quantitatively

Inflation Purchasing Power Parity


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CPI : LaspeyersIndex; PaaschesIndex

CPI =PnQo/ PoQo


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PPP : Purchasing Power of PESO PPP is the value of money measured through the use

of CPI

PPP = 1/ cpiWhen cpi is high (that is when prices of commodities

are high); the value of money is low, when cpi is low(when prices of commodities are low) the value of

money is high


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Base Year 1995 Current

Year

2000

PnQo PoQo

Items Price (Po) Quantity

(Qo)

Price (Pn) Quantity

(Qn)

A 0.10 80 0.15 200 12 8

B 2 10 1.50 5 15 20

C 0.80 50 1 75 50 40

D 0.20 100 0.25 100 25 20

PnQo =102 PoQo = 88

CPI

Price Level

ChangePurchasing

Power of

Peso

Interpret


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CPI : LaspeyersIndex CPI =PnQo/ PoQo CPI = 102/88

CPI= 1.16 or 116%

The Price has increased by 16 % from 1995 to 2000

PPP = 1/cpi

PPP = 1/1.16

PPP = 0.862

Interpretation: The P1 of 1995 is worth 0.86 centavos in2000


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A general increase in the price of goodsand services in an entire economy overtime.


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TYPES OF INFLATION

1. DEMAND PULL INFLATION

2. COST PUSH INFLATION

3. STRUCTURAL INFLATION


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formula for INFLATION RATE

Yearly = [ cpi current year/cpi previous year-1]100

Monthly=[ cpi current mo/cpi previous mo-1]100

Quarterly= [ cpi qtr of current yr /cpi previous ofsame qtr of previous yr-1]100


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EFFECTS OF INFLATION

1. It will result to hoarding or illegal storing ofproduct

2. It will aggravate poverty conditions3. Investment is very risky

4. Lenders of Money or creditors lose duringinflation while debtors benefit from it because of

the decrease in the purchasing power of peso


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Inflations Effect.

If household but Inflation at a higher rate, thenhouseholds purchasing power .

If household and inflation rate proportionally, thenhousehold maintains purchasing power.

Cost of living adjustment clauses (COLA)Provisions for income adjustment to accommodatechanges in price level, which are included in wagecontracts.


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INFLATION RATES

(2000 = 100)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Average 6.7 7.5 5.6 9.3 5.9 4 6.8 3 3.5 6 7.6 6.2 2.8 9.3 3.2 3.8 4.4

January 5.8 8.5 5.6 6.5 10.5 2.2 7.5 3.7 2.8 4.1 8.4 6.7 3.9 4.9 7.1 4.3 3.6

February 5 8.7 5.3 7.6 9 2.5 7.4 3.2 3.2 4 8.5 7.6 2.6 5.4 7.3 4.2 4.3

March 5.6 8.7 5.4 8.1 7.7 2.8 7.6 3.5 3 4.2 8.5 7.6 2.2 6.4 6.4 4.4 4.3

April 5.6 8.9 5.1 8.3 7.1 3.3 7.4 3.5 3.3 4.3 8.5 7.1 2.3 8.3 4.8 4.5 4.3

May 6.3 8 5 9.7 5.8 3.4 7.4 3.5 3.4 4.5 8.5 6.9 2.4 9.5 3.3 4.3 4.5

June 6.6 8 5.6 10 4.9 3.8 7.2 2.9 3.9 5.4 7.6 6.7 2.3 11.4 1.5 4 4.6

July 6.4 7.8 5.4 10.1 4.8 4.2 7.4 2.6 3.7 6.6 7.1 6.4 2.6 12.3 0.2 3.9 4.6

August 6.8 7.3 5.3 9.9 4.7 4.4 7 3 3.4 6.8 7.2 6.3 2.4 12.4 0.1 4.1 4.3

September 8.8 5.3 5.8 9.9 4.9 4.2 6.8 2.7 3.6 7.2 7 5.7 2.7 11.8 0.6 3.5 4.6

October 8.8 5.4 5.9 9.8 5 4.6 6.1 2.6 3.6 7.7 7 5.4 2.7 11.2 1.6 2.8 5.3

November 8.1 6.5 6.4 10.7 3.6 5.7 5 2.4 3.9 8.2 7.1 4.6 3.2 9.9 2.8 3.1 4.7

December 8.1 6.9 6.2 10 3.9 6.5 4.5 2.5 3.9 8.6 6.7 4.3 3.9 8 4.3 3.1 4

Note: Monthly inflation rates when averaged do not tally with the annual inflation rates computed from the

Consumer Price Index in the Philippines.

Starting January 2012, National Statistics Office (NSO) will no longer issue the 2000 based Consumer

Price Index and Inflation Rates.

Source: National Statistics Office

(NSO)

Documents

Consumers Price Index, PPP