Find the price of each good in each year:
Year Cauliflower Broccoli Carrots
2003 $2 $1.50 $0.10
2004 $3 $1.50 $0.20
If 2003 is the base year, the market basket used to compute the CPI is 100 heads of cauliflower, 50 bunches of broccoli, and 500 carrots. We must now calculate the cost of the market basket in each year:
2003: (100 x $2) + (50 x $1.50) + (500 x $.10) = $325
2004: (100 x $3) + (50 x $1.50) + (500 x $.20) = $475
Then, using 2003 as the base year, we can compute the CPI in each year:
2003: $325/$325 x 100 = 100
2004: $475/$325 x 100 = 146
We can use the CPI to compute the inflation rate for 2004:
(146 − 100)/100 x 100% = 46%