Does 100 mean one hundred percent of a target?

Not necessarily. It usually identifies the chosen reference level.

Can two indexes with different reference periods be compared?

Their growth rates may be compared when concepts and methods align; their displayed levels need careful interpretation.

AI Glossary / Statistics and probability / Intermediate

Index number

Definition

An index number expresses a quantity, price, or other measure relative to a specified reference, commonly set to 100. It can describe one series or combine several components using a defined formula and weights. Its meaning depends on what is measured, the comparison being made, and how the index is constructed.

What it means

An index turns a reference level into a convenient benchmark. A value of 108 on a reference of 100 indicates a level eight percent above that reference, provided the series supports that interpretation.
It does not reveal the original amount. Two businesses can both have sales indexes of 108 while having very different revenues. An index can help compare their relative growth, but cannot establish which business sells more.

How it works

Start by defining the phenomenon. A price index, output index, sales-value index, and composite performance score answer different questions. An increase in revenue may reflect changes in prices, quantities, product mix, or all three; it is not automatically a measure of inflation.
For a simple positive-valued series, an elementary index is 100 times the current value divided by the reference value. A zero reference makes that ratio undefined. Negative values can make the usual growth interpretation misleading, so choose a suitable alternative or explain the limitation.
For an aggregate, specify the components, their units, and their importance. Adding unrelated raw prices or taking an arbitrary average of percentage changes can produce a result that depends on irrelevant measurement choices. Document the aggregation rule.
A fixed-basket price calculation values the same quantities at reference and comparison prices. This isolates price change for that particular basket. Other formulas use different information or weighting choices, so legitimate indexes can move differently.
Distinguish the period whose index is displayed as 100 from the period supplying prices or weights. These can coincide in a simple example but need not coincide in a published series. Changing the display reference alone does not update the basket.
Interpret movements through ratios. Between index values A and B, percentage change is 100 times (B/A minus 1). The difference B minus A is measured in index points. Those are different quantities except in special cases.
When comparing services, specify a consistent service unit. An AI computing-cost index could otherwise confuse a cheaper unit price with a change in model capability, context length, hardware, or workload. Quality adjustment requires a defensible method rather than an arbitrary correction.
Record revisions, component changes, missing observations, and breaks in the series. A dashboard should make the comparison period and construction method visible. An index can summarize a complicated pattern, but readers still need access to the underlying components when investigating why it moved.

Three practical examples

A purchasing team tracks the price of a specified basket of recurring supplies relative to its reference period.
A website team indexes weekly visits to compare relative growth across pages with different audience sizes.
An AI operations team monitors a defined computing-cost index while separately reporting workload volumes and service quality.

Think of it this way

Think of setting several measuring instruments to show 100 at a chosen starting point. Their later readings make proportional movement easier to see. Setting them to the same starting display does not make the original quantities equal or make the instruments measure the same thing.

Worked example

An original fixed-basket example contains 30 units of A and 10 units of B. Reference prices are 10 and 20 currency units, so the basket costs 30*10 + 10*20 = 500.
New prices are 12 and 18. The unchanged basket now costs 30*12 + 10*18 = 540. Its price index is 100*540/500 = 108: an eight percent increase relative to the reference.
As an independent arithmetic check, reference expenditure shares are 0.6 and 0.4. Component price relatives are 120 and 90. Their weighted sum is 0.6*120 + 0.4*90 = 108.
Suppose the same index later reaches 118. The movement from 108 is ten index points, but the percentage increase is 100*10/108, approximately 9.26%. If the period previously showing 108 becomes the new reference of 100, the later reading becomes approximately 109.26. This changes the scale, not the measured proportional movement.

Illustrative case study

In a fictional case, Clearline Analytics publishes an index of the cost of a standard monthly AI workload. Its first version mixes cheaper requests with more capable, expensive requests as customer behavior changes.
The team recognizes that the resulting bill comparison does not isolate price change. It defines a reference workload, documents the service specifications, and publishes total spending separately. When a service specification changes materially, analysts explain the comparability issue instead of presenting the entire movement as a price change. The case illustrates measurement design; it is not evidence of a real company's savings.

Common misconceptions and mistakes

Do not call a ten-point increase a ten-percent increase without checking the starting index. Do not infer absolute levels from indexes that use separate references. Do not assume every aggregate index uses equal weights or a permanently fixed basket.
A rise in a composite index does not mean every component rose. Nor does an index by itself establish the cause of a change or prove that a business intervention worked.

Business use

Indexes help teams communicate trends, compare proportional movements, and monitor defined baskets or workloads. Their usefulness depends on consistent definitions and transparent weighting. Keep absolute amounts alongside indexed charts when decisions depend on budgets, capacity, or market size. A visually comparable line chart can conceal very different operational scales.

Check your understanding

Answer: An index rises from 200 to 210.

What changed?

Answer: It rose ten index points and five percent.

Does that show the underlying amount?

Answer: No; the reference amount or other level information is also needed.

Related terms

Time series
Price relative
Laspeyres index
Paasche index
Reference period
Percentage change
Composite indicator

Learn next

Next, distinguish price change from expenditure change. Then examine how alternative baskets, weights, quality adjustments, and linking methods affect the interpretation of an aggregate index.

Sources

Australian Bureau of Statistics, Statistical terms and concepts glossary: https://www.abs.gov.au/statistics/understanding-statistics/statistical-terms-and-concepts/statistical-terms-and-concepts-glossary Australian Bureau of Statistics, Price index theory: https://www.abs.gov.au/statistics/detailed-methodology-information/concepts-sources-methods/consumer-price-index-concepts-sources-and-methods/2025/price-index-theory Australian Bureau of Statistics, Re-referencing and linking price indexes: https://www.abs.gov.au/statistics/detailed-methodology-information/concepts-sources-methods/consumer-price-index-concepts-sources-and-methods/2025/re-referencing-and-linking-price-indexes

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