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Concept
Price index
Summary
A price index (plural: "price indices" or "price indexes") is a normalized average (typically a weighted average) of price relatives for a given class of goods or services in a given region, during a given interval of time. It is a statistic designed to help to compare how these price relatives, taken as a whole, differ between time periods or geographical locations.
Price indices have several potential uses. For particularly broad indices, the index can be said to measure the economy's general price level or a cost of living. More narrow price indices can help producers with business plans and pricing. Sometimes, they can be useful in helping to guide investment.
Some notable price indices include:
Consumer price index
Producer price index
Wholesale price index
Employment cost index
Export price index
Import price index
GDP deflator
No clear consensus has emerged on who created the first price index. The earliest reported research in this area came from Welshman Rice Vaughan, who examined price level change in his 1675 book A Discourse of Coin and Coinage. Vaughan wanted to separate the inflationary impact of the influx of precious metals brought by Spain from the New World from the effect due to currency debasement. Vaughan compared labor statutes from his own time to similar statutes dating back to Edward III. These statutes set wages for certain tasks and provided a good record of the change in wage levels. Vaughan reasoned that the market for basic labor did not fluctuate much with time and that a basic laborer's salary would probably buy the same amount of goods in different time periods, so that a laborer's salary acted as a basket of goods. Vaughan's analysis indicated that price levels in England had risen six- to eight-fold over the preceding century.
While Vaughan can be considered a forerunner of price index research, his analysis did not actually involve calculating an index. In 1707, Englishman William Fleetwood created perhaps the first true price index. An Oxford student asked Fleetwood to help show how prices had changed.
Official source
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