Introduction

In earlier chapters you learnt how to obtain a summary measure from a mass of data on a single variable. This chapter takes the next step: how to obtain a summary measure of the change in a whole group of related variables over time.

Two everyday scenes make the need concrete. Rabi goes to the market after a long gap and finds that the prices of most commodities have changed — some items have become costlier, others cheaper. When he tells his father about the change in price of each and every item he bought, it leaves them both bewildered: no single item's price change describes what happened to "prices" as a whole.

The same problem shows up on the production side. The industrial sector consists of many subsectors, and each is changing at its own pace — output rising in some, falling in others, the changes far from uniform. Describing every individual rate of change is hard to follow. Can a single figure summarise these diverse changes?

Look at the following cases:

• Standard of living. An industrial worker earning Rs 1,000 in 1982 earns Rs 12,000 today. Can his standard of living be said to have risen 12 times over this period? By how much should his salary be raised so that he is as well off as before?
• The stock market. The Sensex crossing 8000 points is greeted with euphoria in the newspapers; when it recently dipped 600 points, it eroded investors' wealth by Rs 1,53,690 crore. What exactly is the Sensex?
• Inflation. The government says the inflation rate will not accelerate despite a rise in the price of petroleum products. How does one actually measure inflation?

These are a sample of the questions you confront in daily life. A study of the index number helps in analysing exactly these questions — and that is what the rest of this chapter builds: what an index number means, how it is constructed, and some of the widely used index numbers you meet in everyday news.