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- a weighted average of the prices of a general ‘basket’ of goods and services produced in an economy over time, which is used in particular to indicate the rate of INFLATION. The RETAIL PRICE INDEX (RPI) is one commonly-used index, measuring the average level of the prices of final goods and services purchased by consumers. Each product in the index is weighted according to its relative importance in total consumer expenditure. A suitable base year is selected to commence the series (for example, index value 1990 = 100) and subsequent price changes are then reflected in changes in the index value over time (for example, 1999 = 200, indicating an annual rate of inflation of 10%). See INDEX-LINKED, PURCHASING POWER.
- a weighted average of the prices of particular classes of financial securities or commodities, for example the Financial Times 100 share index or all-share index. See SHARE PRICE INDEX.
price indexa weighted average of the PRICES of selected goods, services, commodities or financial assets measured over time. One commonly used price index is the CONSUMER PRICE INDEX (CPI), which measures the average level of the price of a general ‘basket’ of goods and services bought by final consumers. Each item in the index is weighted according to its relative importance in total consumers’ expenditure. Starting from a selected BASE YEAR (index value = 100), price changes thereafter are reflected in changes in the index value over time. Thus, taking the example of the UK Consumer Price Index (CPI), the current CPI base year is 1996 = 100; in 2004 the index value stood at 111, indicating that retail prices, on average, had risen 11% between the two dates. Such price indices can be used to measure the rate of INFLATION and as a GNP DEFLATOR. Another commonly used index of price is the Wholesale Price Index, which records the price of a ‘basket’ of goods measured in terms of wholesale prices.
In similar fashion, a SHARE PRICE INDEX such as the Financial Times Stock Exchange ( FTSE) - 100 share index is used to measure change in the price of STOCKS and SHARES over time. The TERMS OF TRADE index is used to measure the average prices of EXPORTS relative to IMPORTS over time. See PURCHASING POWER, FAMILY EXPENDITURE SURVEY, TRADE WEIGHTED INDEX.