Economic Definition of price index. Defined.
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Term price index Definition: A measure of the average of a group of prices calculated as a ratio to prices in a given time period (that is, a base year). A price index is primarily used to compare relative prices, or changes in the group prices over time. Such an index is a handy indicator of overall price trends. Two common price indexes that surface in the study of macroeconomics are the Consumer Price Index (CPI) and the GDP price deflator, both used to indicate the macroeconomy's average price level and the inflation rate. The Dow Jones Industrial Average (the Dow), Standard & Poor's 500, and the NASDAQ are well-known indexes of stock market prices.