Simple Average of Relatives Method

The simple aggregative method has a drawback: a commodity priced in large numbers (a car, say) dominates the aggregate over one priced in small numbers (salt), even though neither is necessarily more "important." The simple average of relatives method fixes this by first converting every commodity's price into a price relative — its price expressed as a percentage of its own base-period price — and then averaging those relatives across all commodities. Because each relative is already a percentage, the resulting index does not depend on the units in which any individual commodity happens to be priced, making commodities that a …