A representative consumer buys 30 kg of rice and 2 shirts in a year. In the base year, rice cost Rs 40 per kg and a shirt Rs 500. In the current year, rice costs Rs 50 per kg and a shirt Rs 450. What is the Consumer Price Index of the current year (approximately)?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 109.09
Given:
Basket: 30 kg rice, 2 shirts
Base year: rice Rs 40/kg, shirt Rs 500
Current year: rice Rs 50/kg, shirt Rs 450
CPI = cost of the same basket in the current year as a percentage of its cost in the base year.
Base-year cost = 30 × 40 + 2 × 500 = 1,200 + 1,000 = 2,200
Current cost = 30 × 50 + 2 × 450 = 1,500 + 900 = 2,400
CPI = 2,400 ÷ 2,200 × 100 = 109.09
107.50 is a plain average of the two price changes. CPI weights each good by how much of it the consumer buys.
NCERT (2026-27): “2.4 Nominal and Real GDP … CPI is generally expressed in percentage terms. We have two years under consideration – one is the base year, the other is the current year. We calculate the cost of purchase of a given basket of commodities in the base year. We also calculate the cost of purchase of the same basket in the current year. Then we express the latter as a percentage of the former. …” |