Meaning of Index Numbers

When displaying time series data, it often make sense to use index numbers.

Index numbers are a simple way of making it easier to compare numbers over a period of time.

A base year is chosen (say 2000) in this year the index is set to 100. This is so it is easy to make % comparisons.

Therefore, if the general price level increase by 3.4% in the UK. The price index in 2001 would be 103.4

When comparing exchange rates it is often advantageous to use index numbers. For example, currencies can be quite hard to compare. But, when converted into index numbers it is easier to see relative changes of currencies.

Economist Commodity Price Index

2000=100

Dec 18th 2007 

• Dollar Price Index = 217
• Dollar price index metals = 237
• Sterling Index = 163
• Euro Index = 139

These index numbers show that the price of commodities has been increasing throughout the world. The dollar price of commodities has increased more because of the weakness of the dollar.

More on Index numbers