Index numbers and their relationship with the economy

Abstract

Index numbers are the basic tool for synthesizing economic statistics, to enable the formulae used to express and describe variables such as a country’s economic growth or an economy’s inflation rate, and also to make international comparisons. If different formulae are used, the results vary, and comparisons are not valid; so it is important to understand the formulae being used. Moreover, countries and international organizations need to promote common practices that harmonize and standardize measurements. Although index numbers are associated with macroeconomics, their theoretical foundation lies in microeconomics.

This publication summarizes the links between price and volume indices and microeconomic theory; and it presents the formulae that are recommended for international measurements, and explains how to use them in international price and volume comparisons.