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Index numbers

Basics

1.1 Introduction

 Index numbers measure how a group of related commercial quantities vary,
usually over time

1.2 Defintion

Value in any given year
 Index number = × 100
Value in base year

1.3 Interpretation

 An index of 113 means there has been an increase of 13% since the base year

 An index of 85 means there has been a decrease of 15% since the base year

 If an index goes up from 120 to 135, the % increase is (135/120) – 1 = 0.125 or
12.5%. You cannot just subtract the indices.

1.4 Choice of base year

 Needs to be a typical year

 May need changing if comparison is out of date

1.5 Changing base year

Old index number using original base year
 New Index number = × 100
Old index number at new base year

 This is also used when splicing chains of index numbers together

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