The correct order of steps for calculating the Consumer Price Index (CPI) and the inflation rate is:
c. Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.
This process involves:
- Fixing a basket of goods and services that represents what consumers typically purchase.
- Finding the current prices for those items in the basket.
- Calculating the total cost of the basket based on the current prices.
- Choosing a base year for comparison.
- Computing the CPI by comparing the cost of the basket in the current year to the cost in the base year.
- Finally, calculating the inflation rate based on the change in the CPI.