Laspeyres index

The Laspeyres index is a weighted price index that values a fixed base-period basket of quantities at current prices, so it measures pure price change but tends to overstate cost-of-living increases by ignoring substitution.

What it is

See it move

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Good A cost €2 per unit when 100 units were bought in the base period, now €3. Good B cost €5 per unit when 40 units were bought, now €6. The base basket costs (2×100)+(5×40)=€400; the same quantities at current prices cost (3×100)+(6×40)=€540. The Laspeyres index is 540÷400×100=135.

The formula

LaTeX

L = \frac{\sum P_1 Q_0}{\sum P_0 Q_0} \times 100

Variables

$P_{1}$: Current-period price (€)
$P_{0}$: Base-period price (€)
$Q_{0}$: Base-period quantity (units)

Values the base-period basket of quantities at current prices versus base prices, isolating pure price change.