Q. Consider the following statements:
1.A price index is a weighted average of the prices of a number of goods and services.
2.Inflation is measured from point-to-point.
Which of the statements given above is/are correct?
Explanation: A price index is a weighted average of the prices of a number of goods and services.
- In the index the total weight is taken as 100 at a particular year of the past (the base year), this when compared to the current year shows a rise or fall in the prices of current year, there is a rise or fall in the ‘100’ in comparison to the base year—and this inflation is measured in digits.
- Inflation is measured ‘point-to-point’. It means that the reference dates for the annual inflation is January 1 to January 1 of two consecutive years (not for January 1 to December 31 of the concerned year).
- Similarly, the weekly rate of inflation is the change in one week reference being the two consecutive last days of the week (i.e., 5 p.m. of two Fridays in India).
Source: Ramesh Singh