## Definition

The CPI is an indicator of the change in the average retail prices of a fixed basket of goods and services commonly purchased by households relative to a base year.

## Computation of the CPI

The formula used in computing the CPI is the weighted arithmetic mean of price relatives, a variant of the Laspeyres formula with fixed base year period weights. In computing the CPI, the formula is: ## ECONOMIC INDICATORS DERIVED FROM THE CPI

1.  Inflation Rate- is defined as the annual rate of change or the year-on-year change in the CPI. 2. Purchasing Power of the Peso

Another important economic indicator derived from the CPI is the PPP. The PPP is a measure of the real value of the peso in a given period relative to a chosen reference period. It is computed by getting the reciprocal of the CPI and multiplying the result by 100. ## INDEX FORMULA

The construction of the CPI basically uses a Laspeyres Formula (fixed base year weights). The formula is modified as the weighted arithmetic mean of price relatives. 