Methods of Consumer Price Index Numbers
There are two methods to compute consumer price index numbers: (a) Aggregate Expenditure Method (2) Family Budget Method
Aggregate Expenditure Method
In this method, the quantities of commodities consumed by the particular group in the base year are estimated and these figures or their proportions are used as weights. Then the total expenditure of each commodity for each year is calculated. The price of the current year is multiplied by the quantity or weight of the base year. These products are added. Similarly, for the base year the total expenditure of each commodity is calculated by multiplying the quantity consumed by its price in the base year. These products are also added. The total expenditure of the current year is divided by the total expenditure of the base year and the resulting figure is multiplied by to get the required index numbers. In this method, the current period quantities are not used as weights because these quantities change from year to year.
Here,
Represent the price of the current year,
Represents the price of the base year and
Represents the quantities consumed in the base year.
Family Budget Method
In this method, the family budgets of a large number of people are carefully studied and the aggregate expenditure of the average family for various items is estimated. These values are used as weights. The current year’s prices are converted into price relatives on the basis of the base year’s prices, and these price relatives are multiplied by the respective values of the commodities in the base year. The total of these products is divided by the sum of the weights and the resulting figure is the required index numbers.
Here, and
Example:
Construct the consumer price index number for on the basis of from the following data using: (1) Aggregate Expenditure Method (2) Family Budget Method.
Commodities 
Quantity consumed in

Unit

Prices






6 quintal

quintal




6 quintal

quintal




1 quintal

quintal




6 quintal

quintal




4 kg

kg




1 quintal

quintal



Solution:
(1) The consumer price index number of by Aggregate Expenditure Method:
Commodities 
Quantity Consumed

Unit

Prices








6 quintal

quintal






6 quintal

quintal






1 quintal

quintal






6 quintal

quintal






4 kg

kg






1 quintal

quintal








The consumer price index number of is
(2) The consumer price index number of by Family Budget Method:
Commodities 
Quantity Consumed

Prices



Product






quintal







quintal







quintal







quintal







kg







quintal









The consumer price index number of is