Price index

A price index is a measure that gives insight into the cost of living at a given point in time. It takes into account the price level of a broad range of goods. Comparing a price index over time allows you to see how the prices of these goods have changed on average. To do so, you calculate the total cost of your selected product range (e.g. EUR 10,000). This will be the reference point for future comparisons and you attribute an index value of 100 to it. If a year later your goods cost a total of EUR 10,100, your new price index would be 101. You arrive at this value, which indicates a 1% increase in price levels, by using the following formula: [price new]/[price old]*100, i.e. EUR 10,100.00/EUR 10,000.00*100. The difference between both price index values reflects the difference in the cost of living in percentage points, meaning life got 1% more expensive in our example. Price indices are the basis for calculating inflation.