Question 14.9: Standard White Bread Loaf Study The prices of a standard loa......
Standard White Bread Loaf Study
The prices of a standard loaf of white bread between 2004 and 2011 are given in Table 14.15. Calculate both the link relatives and price relatives for this white bread price index series.
(See Excel file C14.6 – white bread loaf.)
Table 14.15 Link relatives and price relatives for a standard loaf of white bread
| Year | Bread price (R) | Link relative | Price relative (base 2004 = 100) |
| 2004 | 3.15 | 100.0 | 100.0 |
| 2005 | 3.45 | 109.5 | 109.5 |
| 2006 | 3.70 | 107.2 | 117.5 |
| 2007 | 3.95 | 106.8 | 125.4 |
| 2008 | 4.10 | 103.8 | 130.2 |
| 2009 | 4.45 | 108.5 | 141.3 |
| 2010 | 4.85 | 109.0 | 154.0 |
| 2011 | 5.05 | 104.1 | 160.3 |
The calculated link relatives (using Formula 14.17) and price relatives (using Formula 14.2) are shown in Table 14.15.
Price relative =\frac{p_1}{p_0}\times 100\% 14.2
Price link relative =\frac{p_i}{p_{i-1}}\times 100\% 14.17
Management Interpretation
The ‘Link relative’ column shows that the price of a standard loaf of white bread increased by 9.5% from 2004 to 2005, by 7.2% from 2005 to 2006, by 6.8% from 2006 to 2007, etc. The smallest year-on-year increase in the price of a standard loaf of white bread was 3.8% from 2007 to 2008.
On the other hand, the ‘Price relative’ column shows how the price of a standard loaf of white bread has increased relative to the base period price of 2004. From 2004 to 2007 the price of white bread rose by 25.4%. From 2004 to 2010 the price of a standard loaf of white bread increased by 54%. In 2011, a standard loaf of white bread cost 60.3% more than in 2004.