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A price index tells us nothing about actual price levels. The index measures price movements. For example, if we calculate the percentage change using the index numbers we can see how the prices have moved.
| Year |
Index number |
| Sept 00 |
1034 |
| Sept 01 |
1059 |
For example
|
latest CPI - earlier CPI |
X 100 |
|
earlier CPI |
|
|
Sept 01 - Sept 00 |
X 100 = % increase |
|
Sept 00 |
|
|
1059 - 1034 |
X 100 = 2.4% increase |
|
1034 |
|
This shows us that between September 2000 and September 2001, prices have increased by 2.4 percent.
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