What is the purpose of using the base year when calculating

What is the purpose of using the base year when calculating CPI? Explain

Solution

The purpose of using base year when calculating CPI is to find the change or variation in the prices of the goods in the basket from base year to current year.

The formula for CPI (Consumer Price Index) is

CPI = ( Cost of Basket of good in current year / Cost of Basket of goods in base year ) * 100

So CPI measures the change in prices.

To find any change we need some base or something to comoare with, For example we say that prices are rising how can we say this without comparing it with the prices before, for instance when IPhones come for the first time at price say $1500, we cannot say its price is rising without comparing. But after year of observation (say 1 or 2 years) if price is more than $1500 we can say that prices is rising.
So CPI uses base year to compare the prices from the prices in the year (base year). So we can say that from this year ( the base year) till today prices rises say, 60%.

So the main purpose of using base year is to give a base year or static value from which the current prices could be compared.