Economists frequently use index numbers when making comparisons over time. An index starts in a given year, the base year, at an index number of 100. In subsequent years, percentage increases push the index number above 100, and percentage decreases push the figure below 100. An index number of 102 means a 2% rise from the base year, and an index number of 98 means a 2% fall.
Using an index makes quick comparisons easy. For example, when comparing house prices from the base year of 2005, an index number of 110 in 2006 indicates an increase in house prices of 10% in 2006.
|
Year |
Average house price (£000) |
% change |
Index number |
|
2007 |
200 |
Base year |
100 |
|
2008 |
220 |
10 |
110 |
|
2009 |
230 |
15 |
115 |
|
2010 |
210 |
5 |
105 |
|
2011 |
195 |
-2.43 |
97.57 |
An index number of 97.57 in 2011 means that during 2011 house prices fell by 2.43% from the base year of 2007.