Consumer price index. The most common use of the CPI is as an economic indicator to forecast inflation and evaluate the effectiveness of government policies. Following is the time series plot for the monthly CPI (not seasonally adjusted) from January 2001 to March 2007. The linear trend line is: where to represent the months in the series.

a) What does the intercept 173 represent in this trend line? What does the slope represent?

b) The for this trend line is 97%. Use this linear model to obtain a forecast for the CPI in April 2007.

c) The actual CPI in April 2007 was 206.686. Compute the absolute percent error for your forecast.

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205 200 195 190 185 180 175 + + + + + Month Jan Jan Year 2001 2002 2003 Jan Jan Jan Jan Jan 2004 2005 2006 2007