Consumer Price Index Numbers in Statistics
Consumer price Index numbers in statistics
What are Index numbers?
An index number is a tabular statement which sets forth a number of commodities and their prices at two different periods, etc., so as to give an idea of changes in the general price level. The index number, therefore, indicates to what extent price level (general or sectional) has risen or fallen.
Preparation of Index Numbers
The following steps are necessary for the preparation of index numbers:
1. Selection of the Base Year. The first step is to choose a base year, i.e., the year with reference to which the price changes in other years are sought to be studied. Care has to be exercised in the selection of the base year. It should be a normal sort of a year, neither too prosperous, nor a year of depression. It should not be a year of war or of famine either.
2. Selection of Commodities. The next step is to select the commodities to be included in the index number. The selections of commodities will depend on the object of preparing the index number. Suppose we want to know how a particular class of people has been affected by a change in the general level. In that case, we should include only those commodities which enter into the consumption of that class.
3- Collection of Prices. After commodities have been selected, their prices have to be ascertained. Retail prices are the best, because they are the prices at which commodities are purchased for consumption. But retail prices differ from shop to shop and there is no reliable record of them. Therefore, we have to take wholesale prices of which there is a proper record.
4. The next step is to represent the price of each commodity for the base year as 100 and the price for the subsequent year as a percentage of the price for the base year as is shown in the index number given below.
5. Finally, we take the average of both the base year and the current year figures in order to find out the change.
Following these simple steps will help you in computing Index numbers easily.