Paasche index

Open full sized image

Hermann Paasche.

George Grantham Bain Collection /Library of Congress, Washington, D.C. (Digital File Number: LC-DIG-ggbain-16005)

Paasche index, index developed by German economist Hermann Paasche for measuring current price or quantity levels relative to those of a selected base period. It differs from the Laspeyres index in that it uses current-period weighting.

The index is a ratio that compares the total purchase cost of a specified bundle of current-period commodities (commodities valued at current prices) with the value of those same commodities at base-period prices; this ratio is multiplied by 100. The Paasche price index tends to understate price increases, since it already reflects some of the changes in consumption patterns that occur when consumers respond to price increases—i.e., increased consumption of goods will indicate reduced relative prices.