Different Methods of Calculating Cost of Living Index
What methods of Index Number calculation is used to calculate Cost of Living Index (CLI).
An index number measures the relative change in the price, quantity, value or some other item of interest from one time period to another. It is found by calculating the ratio of the current value to the value at another time point or at a different geographical location.
The different types of simple index that are used are - Price Relative, Quantity Relative, Value Relative. A price index is a weighted average of price relatives.
Cost of Living Index is a type of price index which helps measure the relative cost of living(i.e. cost of services and goods) across different time points or different regions.
In other words, cost-of-living index measures changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living.
There are two parts to calculating the Cost of Living Index 1. Group of items whose prices to consider while calculating the cost of living Index 2. The method (formulae) used to calculate the Cost of Living Index
1. Group of items whose prices to consider while calculating the cost of living Index
Some of the variables that are considered in the various methods used for calculating the Cost of Living Index are a) Selection of items for inclusion in the process – The commodities of selected items for calculating the Cost of Living Index constitute what is called ‘market basket of goods’. The commodities are considered keeping in mind the consumption pattern of a particular group of people. The ‘market basket of goods’ includes goods and services needed for maintain a certain standard of living for that particular group over a period of time. The Commodities are divided into major groups like - Clothing, housing, Food, fuel and light, and other services and goods. Approximately 400 items are used for this calculation.
b) Data included – the sources, the
An index number measures the relative change in the price, quantity, value or some other item of interest from one time period to another. It is found by calculating the ratio of the current value to the value at another time point or at a different geographical location.
The different types of simple index that are used are - Price Relative, Quantity Relative, Value Relative. A price index is a weighted average of price relatives.
Cost of Living Index is a type of price index which helps measure the relative cost of living(i.e. cost of services and goods) across different time points or different regions.
In other words, cost-of-living index measures changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living.
There are two parts to calculating the Cost of Living Index 1. Group of items whose prices to consider while calculating the cost of living Index 2. The method (formulae) used to calculate the Cost of Living Index
1. Group of items whose prices to consider while calculating the cost of living Index
Some of the variables that are considered in the various methods used for calculating the Cost of Living Index are a) Selection of items for inclusion in the process – The commodities of selected items for calculating the Cost of Living Index constitute what is called ‘market basket of goods’. The commodities are considered keeping in mind the consumption pattern of a particular group of people. The ‘market basket of goods’ includes goods and services needed for maintain a certain standard of living for that particular group over a period of time. The Commodities are divided into major groups like - Clothing, housing, Food, fuel and light, and other services and goods. Approximately 400 items are used for this calculation.
b) Data included – the sources, the