Price relative
Topic: Inflation and Index Numbers: CPI, WPI, IIP and the Deflator · NCERT: Class 11, Ch 7 "Index Numbers"
Meaning
A price relative is the index number for a single good. It is that good's current price as a percentage of its base-period price.
Formula: Price relative = (p₁/p₀) × 100
A value above 100 means the price has risen, and a value below 100 means it has fallen. Price relatives are the building blocks of the method of averaging relatives and of the weighted index of price relatives, such as the CPI.
Example
A good's price rose from ₹2 to ₹4, so its price relative is 4/2 × 100 = 200. Its price has doubled. In the NCERT CPI example, food fell from ₹150 to ₹145, which gives a relative of 96.67, a fall of 3.33%.
Don't confuse with
- Quantity relative: (q₁/q₀) × 100. It tracks change in physical quantity, not price. The IIP is built from quantity relatives.
Related concepts
- Index number
- Price index
- Quantity index
- Simple aggregative price index
- Weighted index
- Weighted aggregative price index
- Laspeyres price index
- Paasche price index
- Method of averaging relatives
- Weighted index of price relatives