Base-weighted index means an index number that keeps the weights from a chosen base period fixed while prices or quantities in later periods change.
How it works
For a price index, the standard base-weighted form is the Laspeyres-style expression:
$$ I_t = \frac{\sum_i p_{it} q_{i0}}{\sum_i p_{i0} q_{i0}} \times 100 $$
The base-period quantities (q_{i0}) stay fixed, so the index asks: how much would the original basket cost at today’s prices relative to the base period?
Why economists use it
Fixing the weights makes historical comparison easy. Statistical agencies can compare many later periods to one common reference basket without changing the calculation each time.
That stability is useful for:
- inflation measurement,
- cost-of-living comparisons,
- deflating nominal values into real values.
Main limitation
Because the basket is fixed, a base-weighted index can overstate price growth when households substitute away from goods that become relatively expensive. That substitution bias is one reason economists compare base-weighted, current-weighted, and chain-weighted measures.
Practical example
If bread and fuel had large shares in the base year, then later price increases in those goods continue to carry the old weights even if households have since changed what they buy. The index is still useful, but it measures price change relative to the old basket, not the current one.