Consumer Price Index (CPI)

Submitted By: (Group 2)

Md. Iftekharul Alam Md. Tusher Hossain A.H.M. Nahid Rahman Suparna Nath Taslufa Akter Arin Nayeema Nasrin 12164050 12164048 12164071 12164063 12164066 12364001

Submitted To:
Mr. Jamshed Uz Zaman Instructor BRAC University

Summer 2012

Summary Output

Regression Statistics Multiple R 0.99708545 R Square 0.9941794 Adjusted R Square 0.99369435 Standard Error 2.89132817 Observations 14 ANOVA df Regression Residual Total 1 12 13 Coefficient s SS 17134.56 3 100.3173 4 17234.88 Standard Error 3.602337 7 0.024705 9 MS 17134.56 3 8.359778 6 F 2049.643 2 Significanc eF 8.8E-15

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0% 16.140 3 1.0646 8

Uppe 95.0

Intercept X Variable 1

-8.2914331 1.11850907

0.040075 -2.301681 4 45.27298 5 8.794E-15

-16.1403 1.06468

-0.4426 1.1723 4

-0.442 1.172

Yes I am strongly agree with the idea- CPIt = f (CPIt-1, CPIt-2) From the above regression analysis it is seen that R squire is very good that is near about 1. This correlation defines the variables use in the equation are positively related with one another. If the value of one variable increases the value of another variable will also increase and if the value of one variable decrease the value of another variable will also decrease. F-test and t-statistics of the regression are also very good. T-statistics have absolute value greater than 1.96. Thus the traditional interpretation is that these coefficients are significant.

Dear Mr. Abul Mal Abdul Muhith, Honorable Finance Minister, People Republic of Bangladesh, as per analysis of CPI from 1996 to 2011 it has found that the possible CPI for 2012 to 2014 will 3

be respectively 261.65, 284.75 and 310.63 the inflation rate will be 8%, 8% and 9%. The calculation has given below-

Calculation of Consumer Price Index (CPI)

CPI12 = a + b (CPI12-1) = -8.29 + 1.12(241.02) = -8.29 + 269.94 = 261.65 CPI13 = a + b (CPI13-1) = -8.29 + 1.12(261.65) = -8.29 + 293.04 = 284.75 CPI14 = a + b (CPI14-1) = -8.29 + 1.12(284.75) = -8.29 + 318.92 = 310.63

Calculation of Inflation Rate

Year 2012= (CPI12-CPI11)/CPI11 * 100 = (261.65-241.02)/241.02 * 100 = 20.63/241.02 * 100 = 8% Year 2013= (CPI13-CPI12)/CPI12 * 100 = (284.75-261.65)/261.65 * 100 = 23.10/261.65 * 100 = 8% Year 2014= (CPI14-CPI13)/CPI13 * 100 = (310.63-284.75)/284.75 * 100 = 25.88/284.75 * 100 = 9%

Conversion rate of Taka Comparing Year to Year

2014 CPI/2011CPI = 310.63/241.02 = 1.28 4

2014 CPI/2012CPI = 310.63/261.65 = 1.18 2014 CPI/2013CPI = 310.63/284.75 = 1.09

Findings
1. In 2011, it would cost BDT 241.02 for goods and services costing BDT 310.64 in 2014. We can therefore say that BDT 241.02 in 2011 is equivalent to BDT 310.64 in 2014. 2. The conversion rate of taka regarding year 2011 is 1.28 3. Price level of Products and services will go higher. 4. Inflation rate of year 2014 is 9% which is 1% higher than previous year.

Recommendation
1. Inflation can reduced by slow down the growth of Aggregate Demand by reducing government spending on public and merit goods or welfare payments or it can choose to raise direct taxes, leading to a reduction in disposable income. 2. A tightening of monetary policy involves higher interest rates to reduce consumer and investment spending inflation can be reduced. 3. Supply side policies include those that seek to increase productivity, competition and innovation-all of which can maintain lower prices.

Annex
Questionnaire

Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

CPI 101.33 103.96 112.96 120.94 124.31 126.72 130.26 135.97 143.90 153.24 164.21 176.04 193.54 206.43 221.53 241.02

All numbers are imaginary CPI is the consumer price index. Bangladesh CPI data are given in the table. General idea is that current year CPI depends on CPI of last year and of the year before. That means CPI t = f (CPI t-1, CPI t-2) Do you agree with this idea? Statistically prove your position. Write a report for the Finance Minister giving details of what you found and warn him by stating what you think CPI will be in 2014.