Price Index


 
 
Concept Explanation
 

Price Index

 Price Index: A price index is a normalised average (typically a weighted average) of prices for a given dlass of goods or services in a given region, during a given interval of time. It is a statistic designed to help to compare how these prices, taken as a whole, differ between periods or geographical locations.Price indices have several potential uses. For particularly broad indices, the index ean be said to measure the economy's price level or a cost of living. More narrow price indices can help producers with business plans and pricing. Sometimes, they can be useful in helping to guide investment.Some notable price indices include:

  • Consumer price index
  • Whole sale index
  • Producer price index
  • GDP deflator
  • A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households. The CPI is defined by the United States Bureau of Labour Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services."

    The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indexes and sub-sub-indexes are computed for different categories and sub-categories of goods and services, being combined to produce the overall index with weights  reflecting their shares in the total of the consumer expenditures covered by the index. It is one of several price indices calculated by most national statistical agencies. The annual percentage change in a CPI is used as a measure of inflation. A CPI can be used to index (i.e., adjust for the effect of inflation) the real value of wages, salaries, pensions, for regulating prices and for deflating monetary magnitudes to show changes in real values.

    Two basic types of data are needed to construct the CPI: price data and weighting data. The price data are collected for a sample of goods and services from a sample of sales outlets in a sample of locations for a sample of times. The weighting data are estimates of the shares of the different types of expenditure in the total expenditure covered by the index. These weights are usually based upon expenditure data consumption obtained from expenditure surveys for a sample of households or upon estimates of the composition of consumption expenditure in the National Income and Product Accounts.Consumer Price Index (CPI) in India comprises multiple series classified based on diferent ecomomic groups. There are four series, viz, the CPI UNME (Urban Non-Manual Employee), CPI AL (Agricultural Labourer), CPI RL (Rural Labourer) and CPI IW (Industrial Worker). While the CPI UNME senes is pubhshed by the Central Statistical Organisation, the others are published by the Department of Labour.

    Wholesale Price Index (WPI): WPI first published in 1902, and was one of the economic indicators available to policy makers until it was replaced by most developed countrics by the Consumer Price Index in the 1970s. WPI is the index that is used to measure the change in the average price level of goods traded in wholesale market. In India, a total of 697 commodities data on price level is tracked through wPI, which is an indicator of movement in prices of commodities in all trade and transactions. It is also the price index, which is available on a weekly basis with the shortest possible time lag only two weeks.

    A Producer Price Index (PPI) measures average changes in prices received by domestic producers tor their output. It is one of several price indices.Its importance is being undermined by the steady decline in manufactured goods as a share of spending GDP deflator. In economics, the GDP deflator (implicit price deflator for GDP) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. GDP stands tor gross domestic product, the total value of all final goods and services produced within that economy during a specified period.

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