A price index expresses the average change in a large number of prices with a single value. When calculating a price index, it is necessary to keep the underlying quantity of goods in the so-called shopping basket constant in order to enable a comparison of the average price development in different time periods.
An important price index is the consumer price index, which is calculated by the Federal Statistical Office and used to measure the rate of price increase or inflation in Germany. The shopping basket of the consumer price index comprises around 700 goods and services. In order to determine the overall rate of inflation, the average price development for each type of goods and services is weighted with the share of expenditure that private households spend on it on average. The consumer price index is then a weighted mean value from the price development of the approximately 700 types of goods.
A harmonized consumer price index enables a comparison of the different price developments in the countries of the euro zone.