Question

8. How do you think the basket of goods and services you buy differs from the basket bought by the typical Canadian household? Do you think you face a higher or lower Inflation rate than is indicated by the CPI? Why?/1

Answer 1

Consumer Price Index: It refers to the weighted average of the change in prices of goods and services that consumers pay for buying a basket of goods and services. It is a tool that measures the changes in the cost of living over a period of time and CPI is also used to predict the period of inflation and deflation.

As CPI is based on a general basket of goods and services, an individual basket may differ from what the goods and services are taken for constructing CPI. That is why an individual basket of goods and services may differ from a typical Canadian household.

As the consumption basket differs from person to person so an individual may face higher or lower inflation than what is indicated by the CPI because it is based on a weighted average and shows the inflation faced by a typical person in the country.