Step 1: Assign Weights

Weight the items in your basket according to how much you purchase them. Remember to have the weights add up to a multiple of 10.

The prices have been generated randomly. If you want to you can create a new set of prce changes by clicking below:

Step 2: Create Base Year Index

Assign a value of 100 for the price index of each item in Year 1 (the base year). Why do we do this?

Step 3: Create Price Index for Years 2 and 3

Remember the formula will be: Year 2 Index = (Price Year 2 / Price Year 1) x 100

Step 4: Create a Weighted Index for Years 2 and 3.

Formula: Weighted Index = Price Index x Weight

Optional: create a weighted price index for Year 1. Why is this not necessary?

Step 5: Add up the total of the Weighted Index for Years 2 and 3

Step 6: Divide the total of each Weighted Index by the total of the weighted values.

Step 7: Compare the difference of the average Weighted Index compared to the year before.

Express as a percentage. This is the inflation rate; this is your answer.

Helpful tip: the percentage change between Year 1 and Year 2 will be easy. You need to be careful with the change from Year 2 to Year 3. Using our example from above:

Inflation in Year 2 is %. This is because (-) / = %

Inflation in Year 3 is %. This is because (-) / = %

The trick is to remember that the year you are comparing against has changed as well.