Question

The average wage of a rail-road worker per day was Rs. 119 in 2000 and Rs. 245 in 2005. The consumer price index for these years was 95.5 and 123.5, respectively. Show that the money wage increased by about $59\%$ in 2005 as compared as 2000.

Answer 1

We first calculate a consumer price index with 2000 as base year by dividing given consumer price index by 95.5 and then express the result as percentage.

$\begin{array}{cccccc}\text{Years}& \text{CPI}& \text{Wages}& \text{New CPI(2000=}& \text{Real Wages=}& \text{Money Wages Index}\\ & & & 100)& (\frac{\text{Wages}}{\text{CPI}}\times 100)& (\frac{\text{Real Wages}}{\text{Base Year Wages}}\times 100)\\ 2000& 95.5& 119& \frac{95.5}{95.5}\times 100=100& \frac{119}{100}\times 100=119& \frac{119}{119}\times 100=100\\ 2005& 123.5& 245& \frac{123.5}{95.5}\times 100=129.32& \frac{245}{129.32}\times 100=189.45& \frac{189.45}{119}\times 100=159.20\end{array}$

Although the wages are more than doubled, the money wages increased by only $59.20\%$