Laspeyrestype

Laspeyrestype refers to the Laspeyres-type price index, named after Étienne Laspeyres. It measures the change in the price level of a fixed basket of goods and services between two periods, using base-period quantities.

Calculation of a Laspeyres-type index involves summing the current-period prices times base-period quantities and dividing by the sum of base-period prices times base-period quantities. In formula form: L = sum_i (p1_i * q0_i) / sum_i (p0_i * q0_i). Here p1_i is the price of item i in the current period, p0_i is the price in the base period, and q0_i is the quantity of item i in the base period. The index thus reflects the cost of purchasing the base-period basket at current prices.

Interpretation and limitations: The Laspeyres-type index uses a fixed basket derived from base-period quantities, making it straightforward to compute from price data. However, because it does not allow for substitution toward cheaper goods or adjust for quality changes, it tends to overstate inflation relative to approaches that account for shifting consumption patterns or product improvements, such as the Paasche index or Fisher index.

Applications and variants: It is widely used in official price statistics, including consumer price indices and cost-of-living measures, especially when reliable quantity data for the base period are available. Analysts sometimes combine Laspeyres-type indices with others to form composite measures or to compare with substitution-adjusted indices.

History: The method is named after Étienne Laspeyres (1834–1913), who introduced the approach in the late 19th century.