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Overview

The CPI has previously been described in terms of a basket of goods and services which is ‘purchased’ each quarter. As prices change from one quarter to the next so too will the total cost (or price) of the basket. Of the alternative ways in which a CPI could be described, this description conforms most closely with the procedures actually followed.

Using this description, the construction of the CPI can be thought of as being done in four major steps:

1. subdividing the total expenditure into individual items for which price samples can be selected;

2. collecting price data;

3. estimating price movements for individual items; and

4. calculating the current period cost of the basket.