Simple Price Index measures the change in price of a commodity in the current period compared to its price in a base period. It shows how much prices have increased or decreased over time.
Simple Price Index (SPI) = (Current Price ÷ Base Period Price) × 100
Laspeyres Price Index measures the change in prices of a group of commodities over time by using quantities of the base period as weights. It shows how much more (or less) it would cost to purchase the base-period basket of goods at current prices.
Laspeyres Price Index (LPI) = ( Σ P1Q0 ÷ Σ P0Q0 ) × 100
Where: P1 = current price, P0 = base price, Q0 = base period quantity
Paasche Price Index measures the change in prices of a group of commodities over time by using quantities of the current period as weights. It shows how much it would cost to purchase the current-period basket of goods at current prices compared to base-period prices.
Paasche Price Index (PPI) = ( Σ P1Q1 ÷ Σ P0Q1 ) × 100
Where: P1 = current price, P0 = base price, Q1 = current period quantity
Fisher’s Ideal Price Index is a price index that measures the change in prices of a group of commodities over time by taking the geometric mean of the Laspeyres and Paasche price indices. It is called an ideal index because it satisfies both time reversal and factor reversal tests.
Fisher’s Ideal Index (F) = √(Laspeyres Price Index × Paasche Price Index)
Where:
Laspeyres = ( Σ P1Q0 ÷ Σ P0Q0 ) × 100
Paasche = ( Σ P1Q1 ÷ Σ P0Q1 ) × 100
Consumer Price Index (CPI) measures the change in the general level of prices of a fixed basket of goods and services consumed by households over time. It is used to measure inflation and changes in the cost of living.
CPI = ( Cost of Fixed Basket in Current Year ÷ Cost of Fixed Basket in Base Year ) × 100
CPI is generally calculated using the Laspeyres method (base-period quantities as weights).
Wholesale Price Index (WPI) measures the change in the general price level of goods traded in bulk at the wholesale level over time. It reflects price movements of primary articles, fuel & power, and manufactured products.
WPI = ( Value of Wholesale Basket in Current Period ÷ Value of Wholesale Basket in Base Period ) × 100
WPI is a weighted index, where weights are assigned based on the relative importance of commodity groups.
Terms of Trade (Agriculture vs Non-Agriculture) refers to the ratio of prices received by the agricultural sector to the prices paid by it for non-agricultural goods and services. It indicates whether agriculture is gaining or losing in exchange with the non-agricultural sector.
Terms of Trade (ToT) = ( Price Index of Agricultural Products ÷ Price Index of Non-Agricultural Products ) × 100
ToT > 100 → Favourable to agriculture
ToT = 100 → Neutral
ToT < 100 → Unfavourable to agriculture
Parity Price is the price of an agricultural commodity that gives the farmer the same purchasing power as in a chosen base period. It ensures equality between prices received by farmers and prices paid by them for goods and services.
Parity Price = ( Base Period Price × Current Price Index ) ÷ Base Period Price Index
Usually, the price index used is a cost of living or input price index.
Price Instability Index measures the degree of variation or fluctuation in prices of a commodity over a period of time. It indicates the extent of price volatility and is commonly measured using the coefficient of variation.
Price Instability Index (PII) = ( Standard Deviation of Prices ÷ Mean Price ) × 100
This is also called the Coefficient of Variation (CV).
Trend Value represents the long-term movement or general direction of a time-series data. It is usually estimated by fitting a trend line using the method of least squares.
Trend Equation: Yt = a + bt
Where:
Yt = Trend value at time t
a = Intercept (trend value at origin)
b = Slope (rate of change per period)
t = Time period