Price Level

AAA

DEFINITION of 'Price Level'

The average of current prices across the entire spectrum of goods and services produced in the economy. In a more general sense, price level refers to any static picture of the price of a given good, service or tradable security. Price levels may be given in small ranges, such as with securities prices or presented as a discrete value.

The most common price level index is the Consumer Price Index (CPI).


INVESTOPEDIA EXPLAINS 'Price Level'

The price level is usually examined through a "basket of goods" approach, in which a collection of consumer-based goods and services are examined in aggregate; changes in the aggregate price over time will push the index measuring the basket of goods higher. Weighted averages are typically used rather than geometric means.

Price levels provide a snapshot of prices at a given time, making it possible to review changes in the broad price level over time. As prices rise (inflation), or fall (deflation), consumer demand for goods is also affected, which leads broad production measures like gross domestic product (GDP) higher or lower.

Price levels are one of the most watched economic indicators in the world; it is widely believed that prices should stay relatively stable from year to year so as not to cause undue inflation (rising prices). If price levels begin to rise too quickly, central bankers or governments will look to decrease the money supply or otherwise decrease the aggregate demand for goods and services.

RELATED TERMS
  1. Economic Indicator

    A piece of economic data, usually of macroeconomic scale, that ...
  2. Headline Inflation

    The raw inflation figure as reported through the Consumer Price ...
  3. Neutrality Of Money

    An economic theory that states that changes in the aggregate ...
  4. Setup Price

    A price level predetermined as the point of entry into a specific ...
  5. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  6. Inflation

    The rate at which the general level of prices for goods and services ...
Related Articles
  1. thinkstock|istock
    Economics

    Understanding Supply-Side Economics

  2. Economics

    Why The Consumer Price Index Is Controversial

  3. Bonds & Fixed Income

    Curbing The Effects Of Inflation

  4. Economics

    The Importance Of Inflation And GDP

Hot Definitions
  1. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  2. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  5. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  6. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
Trading Center