Introduction
The consumer price index or CPI measures price movements from one year to the next, giving us an indication of inflation. A variety of consumption items goes into computing the CPI but each is given a different weight. Data from surveys on consumption conducted by the Department of Statistics were used to assign these weights so that items that are likely to be consumed more are given more emphasis.
We know that prices of some items we consume tend to change more frequently than others. If these have been heavily weighted in the CPI, then the CPI will become more vulnerable to mood swings. To clearly show whether prices are rising or falling, the CPI should move along a steady trend and consumption items included in the index that are weighted heavily should not have volatile price movements.
