How to calculate index numbers

Written by ken macdonald | 13/05/2017
How to calculate index numbers
Use index numbers to calculate the percentage increase in beer prices over a defined time period. (Hemera Technologies/ Images)

Economists use index numbers to show how indicators, such as prices, fluctuate over time. One of the best known index figures is the retail price index which the government uses to calculate the level of inflation. Index numbers are often expressed in percentages and in the example of the retail price index, the percentage number shows how much prices for a basket of goods have changed over a period of one year.

Create a base period for your index. This means picking a time and fixing the price of your subject at that point as your baseline. For example, a pint of beer cost £3 in 2010, and you choose 2010 as your base period. Give the price at your base period a value of 100.

Make a comparison by looking at the price of a pint in 2013. For the purposes of this exercise, the price of a pint rose to £4.

To calculate the index in 2013, divide the 2013 price by the 2010 price and then multiply by 100. So, 4 divided by 3 is 1.33, to two decimal places. Multiply 1.33 by 100 and you get 133. Subtract 100 from 133 to give the percentage price increase, 33%.

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