economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

statistics Statistics (from German language, German: ', "description of a State (polity), state, a country") is the discipline that concerns the collection, organization, analysis, interpretation, and presentation of data. In applying statistics to a s ...

, and

finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

, an index is a number that measures how a group of related data points—like prices, company performance, productivity, or employment—changes over time to track different aspects of economic health from various sources. Consumer-focused indices include the

Consumer Price Index A consumer price index (CPI) is a statistical estimate of the level of prices of goods and services bought for consumption purposes by households. It is calculated as the weighted average price of a market basket of Goods, consumer goods and ...

(CPI), which shows how retail prices for goods and services shift in a fixed area, aiding adjustments to salaries, bond interest rates, and tax thresholds for

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

. The cost-of-living index (COLI) compares living expenses over time or across places.Turvey, Ralph. (2004)
Consumer Price Index Manual: Theory And Practice.
' Page 11. Publisher:

International Labour Organization The International Labour Organization (ILO) is a United Nations agency whose mandate is to advance social and economic justice by setting international labour standards. Founded in October 1919 under the League of Nations, it is one of the firs ...

. . ''

The Economist ''The Economist'' is a British newspaper published weekly in printed magazine format and daily on Electronic publishing, digital platforms. It publishes stories on topics that include economics, business, geopolitics, technology and culture. M ...

''’s Big Mac Index uses a Big Mac’s cost to explore

currency A currency is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general definition is that a currency is a ''system of money'' in common use within a specific envi ...

values and purchasing power. Market performance indices track trends like company value or employment. Stock market indices include the

Dow Jones Industrial Average The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow (), is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The DJIA is one of the oldest and most commonly followed equity indice ...

and

S&P 500 The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices and in ...

, which primarily cover U.S. firms. The Global Dow and

NASDAQ Composite The Nasdaq Composite (ticker symbol ^IXIC) is a stock market index that includes almost all stocks listed on the Nasdaq stock exchange. Along with the Dow Jones Industrial Average and S&P 500, it is one of the three most-followed stock market i ...

monitor major companies worldwide. Commodity indices track goods like oil or gold. Bond indices follow debt markets. Proprietary

stock market index In finance, a stock index, or stock market index, is an Index (economics), index that measures the performance of a stock market, or of a subset of a stock market. It helps investors compare current stock price levels with past prices to calcul ...

tools from brokerage houses offer specialized investment measures. Economy-wide, the

GDP deflator In economics, the GDP deflator (implicit price deflator) is a measure of the money price of all new, domestically produced, final goods and services in an economy in a year relative to the real value of them. It can be used as a measure of the val ...

, or real GDP, gauges price changes for all new, domestically produced goods and services.

Index numbers

An index number is economic data figure that compares a value—like price or quantity—to a standard starting point, called the base value, which is usually set at 100. It’s calculated as 100 times the ratio of the current value to the base—for example, if a commodity’s price doubles from 1960 to 1970, its index number would be 200 with 1960 as the base. Index numbers help simplify complex data about business activity,

cost of living The cost of living is the cost of maintaining a certain standard of living for an individual or a household. Changes in the cost of living over time can be measured in a cost-of-living index. Cost of living calculations are also used to compare t ...

, or employment into numbers that are easy to understand and compare over time. Some index numbers, called superlative index numbers, are designed to closely approximate an ideal index based on an unknown

utility function In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. * In a Normative economics, normative context, utility refers to a goal or ob ...

(how people value goods and services)—for example, the true cost-of-living index. While that ideal index relies on an uncalculable formula, superlative ones can be computed and provide a close match in many cases, such as for prices or quantities. Economists study how to build these numbers, what makes them useful, and how they connect to economic ideas, often measuring shifts in prices, wages, or production against a base of 100. Some indices are not

time series In mathematics, a time series is a series of data points indexed (or listed or graphed) in time order. Most commonly, a time series is a sequence taken at successive equally spaced points in time. Thus it is a sequence of discrete-time data. ...

—like spatial indices, which compare things like real estate prices or service availability across geographic locations, or indices comparing distributions of data within categories, such as

purchasing power parity Purchasing power parity (PPP) is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries' currency, currencies. PPP is effectively the ratio of the price of a market bask ...

for currencies.

Index number problem

The index number problem is a challenge in

where statistical indices struggle to perfectly measure economic changes, such as increases in the

with tools like the

(CPI). It arises because indices rely on fixed assumptions—like a set basket of goods in the CPI—that may not match real-world shifts in spending, production, or preferences, leading to inaccuracies in tracking

or other trends. This limitation affects various indices. The CPI can overstate or understate living costs if consumers switch to cheaper goods when prices rise, a flaw called

substitution bias Substitution bias describes a possible bias in economic index numbers if they do not incorporate data on consumer expenditures switching from relatively more expensive products to cheaper ones as prices changed. Substitution bias occurs when pric ...

. The Producer Price Index (PPI) might miss shifts in production costs or quality improvements in goods. The

can skew real output by not fully adjusting for new products or price variations. There’s no perfect solution, as ideal indices require complete data on preferences or market conditions, which is impractical. In practice, baskets or weights are updated periodically, but long-term comparisons remain inexact.

References

External links

Humboldt Economic Index

Lars Kroijer

SG Index
{{DEFAULTSORT:Index (Economics) Business terms Economic growth Economic indicators Mathematical and quantitative methods (economics)

Index numbers

Index number problem

See also

References

Further reading

External links