Elsewhere in this issue of ECONOMIC REVIEW, Robert O’Neill discusses the use of index numbers in measuring the overall price level in an economy. This in turn allows us to calculate the rate of inflation — the rate at which the overall price level changes through time. This is one important way in which index numbers can be used — but it is not the only way.
Put simply, an index number compares the value of a variable in some period or location with a base value, where the base value is usually expressed as 100. For example, the value of the consumer price index (CPI) in a particular month is an index number that compares the overall level of prices in the economy with the base period, where the index in the base period takes on the value 100. In the case of the CPI, the base period is the average level of consumer prices in the UK in 2005. In July 2015, the index stood at 128.0.
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