Methods of constructing CPI

Dear student
The consumer price index numbers are constructed by the following
two methods:
(1)Aggregate Expenditure Method or Weighted Aggregate Method: To apply this method, the quantities of commodities consumed by the particular group in the base year are estimated and these figures are used as weights. Then, the total expenditure on each commodity for each year (base and current) are calculated.

(2) Family Budget Method or Method of Weighted Average of Price Relatives: In this method, the family budgets of a large number of people, for whom the index is meant, are carefully studied. Then, the aggregate expenditure of an average family on various commodities is estimated. These values constitute the weights.


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