how do you change the base year of a price index?
To change the base year of a price index, you need to follow these steps:
Step 1: Calculate the current price index using the existing base year. This can be done by dividing the current price level by the base year price level and multiplying by 100. Remember to take into account the items or goods being measured.
Step 2: Determine the new base year that you want to use. The new base year is typically chosen to reflect a more current or relevant time period.
Step 3: Calculate the conversion factor or a linking factor between the new and existing base years. This factor is derived by dividing the current price index of the new base year by the existing price index.
Step 4: Apply the conversion factor to rebase the price index. Multiply each observation in the original price index by the conversion factor. This is done to adjust the values to be consistent with the new base year.
Step 5: Recalculate the new price index by dividing the rebased values by the new base year price level and multiplying by 100. This will give you the new price index with the desired base year.
By following these steps, you can effectively change the base year of a price index.