A price index is a statistical measure that reflects the average change in prices over time for a specific set of goods and services. It helps economists and policymakers understand inflation or deflation by comparing current prices to those in a base year. Common examples include the Consumer Price Index (CPI) and the Producer Price Index (PPI). Price indices are essential for adjusting salaries, pensions, and contracts to maintain purchasing power. They also guide investment decisions and economic policy by indicating trends in the economy. By analyzing these indices, stakeholders can make informed choices based on price movements.