How to Calculate Index Numbers

Index numbers characterize the magnitude of economic changes over time. They can describe trends in a change of any economic data such as retail prices, an employment rate, a company revenue or Gross Domestic Product. Index numbers are always calculated with respect to a base period: a year, a month or a quarter.

Instructions

1. Obtain a value for the base period. For instance, the company revenue was $2,500,000 in 2005.

2. Obtain the value for another period you wish to compare to the base one. For instance, the revenue of the same company became $3,600,000 in 2008.

3. Divide the number from Step 2 by the base period value, and multiply the quotient by 100 to calculate the index number. In our example :

   Index number = ($3,600,000 / $2,500,000) x 100 = 144.

   Since 100 is the full amount of the base period (or 100%), subtract 100 from your answer. This indicates the revenue growth by 44 percent in comparison to the base year.

References

• "Essays in Index Number Theory (Contributions to Economic Analysis)", W.E. Diewert and A.O. Nakamura, Mar 1993.

Resources

• Read this Article in Spanish
• Index Numbers