Paasche index

The Paasche index is a weighted price index that values the current period's basket of quantities at current versus base prices; paired with the Laspeyres index, the two bracket the true change in the cost of living.

What it is

See it move

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This period, 25 units of Good A were bought (€4 base price, €5 now) and 60 units of Good B (€2 base price, €2.50 now). That current basket costs (4×25)+(2×60)=€220 at base prices and (5×25)+(2.50×60)=€275 at current prices. The Paasche index is 275÷220×100=125.

The formula

LaTeX

P = \frac{\sum P_1 Q_1}{\sum P_0 Q_1} \times 100

Variables

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

Values the current period's basket of quantities at current prices versus base prices, reweighting to today's buying pattern.