Question 14.11: Paint and Painting Accessories Study (2) Refer to Example 14......
Paint and Painting Accessories Study (2)
Refer to Example 14.10 for the problem description and the annual price index series for a basket of paint and painting accessories from 2005 to 2011. Find the average annual percentage price change in the basket from 2005 to 2011.
Calculate the annual link relatives from the composite price indexes (see tables 14.16 and 14.17 above).
Apply the geometric mean formula (Formula 13.20) to the annual link relatives:
Geometric mean = \sqrt[6]{(111.4\times 103.4\times 109.9\times 114\times 121.1\times 109.4)} = 111.41
The average annual percentage price change = 111.41 − 100 = 11.41%.
Management Interpretation
The prices of paint and painting accessories have increased by an average of 11.41% annually from 2005 to 2011.
Table 14.16 Paint and painting accessories composite price index series (base = 2008)
| Year | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
| Composite price index | 79 | 88 | 91 | 100 | 114 | 138 | 151 |
Table 14.17 Link relatives – paint and painting accessories composite price index series
| Year | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
| Composite price index | 79 | 88 | 91 | 100 | 114 | 138 | 151 |
| Link relative | — | 111.4 | 103.4 | 109.9 | 114 | 121.1 | 109.4 |