Index numbers

An index number measures the value of an item (or group of items) at a point in time as a percentage of the value of the item (or group of items) at another fixed time point.

Price and quantity indices

There are many types of indexes (or indices) – for example price indices are used to measure changes in prices of items over time, while quantity indices are used to measure changes in quantities such as imports or exports over time. In this section, only price indices are considered but many of the principles and formulae carry over to other types of index numbers.

Price indices are widely used to describe business activity. Index numbers describing consumer prices and stock market prices are widely used and reported in the media. An index number can describe a specific category of item or may be more general.

CPI and stock market indices

The Consumers Price Index (CPI) in a country summarises the overall price level of goods and services purchased by households at different times. Other price indices describe prices of energy, accommodation and various classes of food.

Stock market indices such as the Dow Jones (USA), FTSE 100 (UK) and NZX50 (New Zealand) are used to summarise changes in the value of company shares in specific countries. Other stock market indices such as the NASDAQ (technology) describe particular market segments.