A price index is a weighted indicator that characterizes the market value of a certain group of goods or services in a particular region over a period of time. The cost of living coefficient characterizes the state of the national economy. This is the so-called general price index. Narrower scopes help entrepreneurs make investment decisions. All these coefficients are calculated by the national statistical agencies of most modern states, including Rosstat. The consumer price index is the most famous of them. In this article we will consider the history of the development of this concept, types of indicators, their calculation and application features.
Definition of a concept
The price index is a statistical relative value. It is used to compare the dynamics of the market value of groups of goods and services in time and geographical space. The methodology for calculating this indicator begins with the selection of a representative sample and the selection of the formula. There are three main indices: the deflator of GDP, consumer and industrial prices.
History of the concept
There is no consensus among economists as to who came up with the first price index. This is not surprising, because there are many specialists involved in this field. Many refer to Rice Wogan's study, The Discourse of Coins and Coinage. His work was released in 1675. The author wanted to separate the inflationary effect of the influx of precious metals into Spain from America from the effect of coin corruption. Vaughan compared the labor statutes of his time and the Edward III period, which recorded hourly wage levels. The Welsh economist believed that approximately the same set of products could be bought for them. Wogan's study showed that the price level in England over the previous century has grown 6-8 times. However, it did not directly calculate the growth rate.
The first price index was calculated by the English economist William Fleetwood in 1707. He was approached by a student at Oxford, who could lose a scholarship because his annual income exceeded five pounds. This condition was adopted in the 15th century. Fleetwood's area of interest included price changes, so he had at his disposal a huge amount of statistical information on this issue. He proved that over the past 260 years, the value of five pounds has changed significantly. He published his findings anonymously, but his research greatly helped Oxford students.
Laspeyres Index
The most important thing for most people is the rise in consumer prices, which characterizes inflation. This indicator is based on a fixed basket of goods and services. It is a variation of the Laspeyres index, since the base year prices are used in its calculation. Let Q 0 be the base year output level. It may also be the required quantity of goods in the consumer basket. And P 0 and P 1 - price levels in the base and current period. Then the consumer price index (CPI) formula will look like this: ∑ (Q 0 x P 1 ) ∑ (Q 0 x P 0 ). The main problem of using this indicator is that it does not take into account changes in the structure of expenses. It reflects only the effect of income, ignoring the possibility of substitution. Therefore, the consumer price index often gives an overestimated inflation rate when prices rise and underestimated when they fall.
GDP deflator
Another indicator that characterizes the state of the economy is the Paasche index. It is based each time on a new consumer basket or release level. Let Q 0 and Q 1 be the volume of production in the base and current period, and P 0 and P 1 be the price levels corresponding to these time frames. Then the GDP deflator formula will look like this: GDPdeflator = ∑ (Q 1 x P 1 ) ∑ (Q 0 x P 0 ). This indicator can also be calculated by dividing the nominal gross domestic product into real. The main problem of this indicator is that it often underestimates inflation where the consumer price index gives an overestimated characteristic, that is, with rising prices.
Average value
To eliminate the shortcomings inherent in the two previous indicators, another price index was invented. This was done by the American economist Irving Fisher. He suggested calculating the geometric mean, that is, the square root, from the product of the Laspeyres and Paasche indices.
Rosstat: Consumer Price Index
According to the Federal State Statistics Service, the situation in the economy has begun to level off. In January 2016, consumer prices increased by 9.8%, in the same month of 2015, their growth was 12.9%. This indicator was lower only in November 2014. On average, the consumer price index in Russia for the period of independence amounted to 137.42%. It was the lowest in April 2012 - 3.6%. Rosstat recorded a record high price index in December 1992 - 2333.3%. When calculating this indicator, the Federal State Statistics Service takes into account the following categories: food and non-alcoholic drinks (30%), transportation costs (14%), clothes and shoes (11%), rent (11%), leisure and entertainment (6%) .