Index Numbers and Their Relationship with the Economy

Index numbers are the basic instrument for synthesizing economic statistics so that the formulas used make it possible to express and describe, for example, the economic growth of a country or the inflation rate of an economy, and also to make international comparisons. If different formulas are used, the results differ and the comparisons are not valid. Hence the importance of knowing the formulas used, and that countries and international organizations promote common practices that harmonize and standardize measurements. Although index numbers are linked to macroeconomics, their theoretical foundation is based on microeconomics. This publication summarizes the links between price and volume index numbers and microeconomic theory, introduces recommended formulas for international measurements, and explains how to use them in international price and volume comparisons.