Consumer Price Index

The Consumer Price Index (CPI), also called the cost-of-living index, measures the average change in retail prices. To read it, consider: CPI for industrial workers (2001 = 100) is 277 in December 2014. This means a worker who spent Rs 100 on a typical basket in 2001 needs Rs 277 in December 2014 to buy an identical basket — whether or not he actually buys it, what matters is the capability to do so.

CPI is a weighted average of price relatives, $CPI = \dfrac{\Sigma WR}{\Sigma W}$, where $R = \dfrac{P_1}{P_0}\times100$ is each item's price relative. Worked example:

$CPI = \frac{\Sigma WR}{\Sigma W} = \frac{9786.85}{100} = 97.86$ …