How do I calculate price relatives?
To calculate price relatives, follow these steps:
1. Choose a base year: This is the year for which you want to establish a comparison. Assign a value of 100 to the price index in the base year.
2. Select a target year: This is the year you want to compare against the base year.
3. Determine the price index for the target year: The price index represents the average price level of a basket of goods or services in the target year compared to the base year. To calculate the price index, divide the average price of the basket of goods in the target year by the average price of the same basket of goods in the base year. Multiply the result by 100 to express it as a percentage.
Formula for price index: (Average price in the target year / Average price in the base year) * 100
4. Repeat steps 2 and 3 for any additional years or periods you want to compare to the base year.
5. Calculate the price relative between the target year and the base year: The price relative represents the change in the price level from the base year to the target year. To calculate the price relative, divide the price index of the target year by 100.
Formula for price relative: Price index / 100
The resulting price relative indicates the percentage change in the average price level from the base year to the target year. A price relative greater than 100 indicates an increase in prices, while a price relative less than 100 indicates a decrease in prices.