Consumer Price Index Notes

CPI

Assume that in the “base year” (2006) the total expenditures were

  $48,398 for a family of four.

48,398

48,398  = 1 (rate of change).  1 x 100 = CPI of 100

Then, the 2007 total expenditures for the family were $48,898

48,898

48,398 = 1.01 (rate of change).  CPI = 101

Therefore:  Inflation would be =

101 – 100            1           

     100       =    100    =  .01 (x 100) = 1% inflation for the year

Example:

College Tuition for me versus you:

Mine  =  approx  $  1,200 a year

Yours =  approx $ 12,000 a year

12,000 – 1,200          10,800

        1,200          =      1,200      = 9 (rate of change) x 100 = 900%

                                                                                              Inflation

Tuition for your children

x – 12,000

   12,000     = 9 (rate), = x-12000 = 108,000, x = $120,000 a year

Consumer Price Indexing

Changes in Values over Time:  Data comes from the Bureau of Labor Statistics

• Assume that most of your parents were in high school in 1982.  This was 29 years ago. 
• Assume that inflation rates from the past will be the same the equivalent time period into the future.
• Assume your children will graduate from high school in 2040.  This assumes that you marry in the next decade or so and start a family, the same as your parents did in the past.  This is 29 years into the future. 
• Assume that you were born in 1993 or 1994.  If you were born in another year, use the data from 1993.
• Calculate the problems below to 2 decimal points.

Year	CPI for that year (Index year was 1983)
1982	99
1993	144
1994	148
2011	225
2040	???

1. What has been the rate of change since your parents graduated HS?
2. What has been the inflation % since your parents graduated HS?
3. What will your kids earn in minimum wage during their senior year in HS?  Use the current wage as $7.25.
4. What will your kids pay at a gas station for a gallon of gas during their Senior year?  Assume the current price is $3.40.
5. What will your child earn as a first year teacher after graduating college?  Assume the current Texas teacher starting salary is $42,000.
6. What will a house cost your newly graduated (from college) child.  Assume the current average house cost is $200,000.
7. What will a car cost your newly graduated child.  Assume a $25,000 car.
8. What will you be expected to help pay for your high school graduates first year of college when they enter college in the fall of 2040.  Assume the total current costs of college are about $15,000 a year. 
9. What will the CPI be in 2040?
10. (This is a typical AP question, answer without a calculator):  If a selected year’s CPI is 300, what is the inflation % change from the Index Year?