Index Number

Intermediate

An index number is a figure that shows how a value has changed relative to a base period, which is usually set equal to 100.

Index numbers make it easy to compare changes over time, especially for quantities measured in different units or combining many items.

For example, if the average price of a basket of goods was 50 in the base year and is 55 today, the price index is 110, showing a 10% increase since the base year.

Many important economic statistics are expressed as index numbers. The Consumer Price Index measures changes in the cost of living. Stock market indices, such as major benchmark indices around the world, track the combined value of groups of shares. Index numbers are also used for house prices, wages, production and many other measures.

Index numbers can be simple, tracking a single item, or composite, combining many items. Composite indices assign weights to their components, reflecting their importance. For example, a consumer price index gives more weight to housing and food than to items that make up a small share of household spending.

Index numbers show relative change, not absolute values. An index of 120 means a 20% rise from the base, but says nothing about the actual price level. Comparing two index values directly shows the percentage change between them.

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