Composite Index Number Examples

Definition: A composite index number is formed by combining two or more index numbers, and a weighting is usually given to each of the index in order to calculate the weighted average index number.

Formula:
Composite index = (Total of index * weighting) / Total weighting

Example 1:
The index of prices for transport is 100 compared to a given base year. The index for housing is 160 (compared to the same base year). Calculate the composite index for transport and housing by using a weighting of 65 for transport and 35 for housing.
Solution:
Composite index = (100 * 65 + 160 * 35) / (65 + 35) = 12,100 / 100 = 121

Example 2:
The following data are observed:
Beverage: Weight (120); Price index (210)
Clothing: Weight (100); Price index (200)
Food: Weight (80); Price index (190)
Then,
Composite index = (120 * 210 + 100 * 200 + 80 * 190) / (120 + 100 + 80) = 60,400 / 300 = 201.3
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