Key terms
- Price index
- A price index is a number measuring the average prices of a set of goods and services over time.
- Base year
- The base year is the year whose prices you use to work out the real figure.
An index says what prices are relative to one chosen year
A price index sets the base year equal to 100. An index of 150 in a later year says the average price level is half again as high as it was in the base year; an index of 120 says a fifth higher. The index carries no pounds of its own, so the same one converts a wage, a price or a whole economy's output.