Woking out the consumer price index.

1.

a). The CPI is a way of measuring the average prices paid by consumers for a fixed basket of goods (Parkin et. al., 2008:500). South Africa’s current CPI is 4.6% (SARB, 2010) as of May 2010. The means that prices consumers pay on average are 4.6% more expensive that at the same time in the last period. The CPI is important to everyone as it is used to calculate inflation. Government may want to know this figure so state pensions can be increased appropriately. Firms would want to know this so employee’s salaries can be adjusted to compensate for the rise in prices.

b). According to InflationData.Com (2010), the inflation rate is worked out using this formula:

((New CPI - Old CPI ) / Old PCI)*100

This means that the inflation rate between November 2008 to November 2009 can be calculated as follows:

((108.9-102,9)/102,9)*100

= 5.83 %

A base year is the reference point at which the CPI in based. South Africa’s CPI base year is 2008. This means that the CPI of 2008 is equal to 100 index points.

c). South Africa’s GDP growth rate as of 2009 is 3% (World Bank, 2010). South Africa is currently is a recession because the GDP growth rate is on the decrease. According to the World Bank (2010), in 2007 South Africa’s GDP growth rate was 5.1% , in 2009 South Africa’s GDP is 3%.

d). South Africa’s current unemployment rate is 25.2% (Mail and Guardian, 2010). This means that 25.2% of the South African workforce is unemployed.

e). Reducing the unemployment rate is policy challenge for South Africa because this would in turn mean reducing the minimum wage of workers.

With a reduced minimum wage, the quantity demanded of the work force would increase and unemployment would decrease as a result.

Unfortunately a reduced minimum wage would negatively influence the sector of the workforce that is already employed.

List of references:

· PARKIN, M, POWELL, M, MATTHEW, K, 2008. Economics (7e). Essex, England: Pearson.

· WORLD BANK, 2010. Inflation Rates. [Online]. Available: http://www.reservebank.co.za. [Accessed 21 July 2010].

· INFLATIONDATA.COM, 2010. How Do I Calculate the Inflation Rate?. [Online]. Available: http://inflationdata.com/inflation/inflation_articles/calculateinflation.asp. [Accessed 21 July 2010].

· MAIL AND GUARDIAN, 2010. Stats SA: unemployment rate increases. [Online]. Available: http://www.mg.co.za/article/2010-05-04-stats-south-africa-unemployment-rate-increases. [Accessed 21 July 2010].