How to deflate data from PPI

Question

I have producer price index data. I have 4 products almond walnut pecan and peanuts, two of them start from 1991 almond and walnut (base year) another two from 1982 pecan and peanut. Does anyone know how to bring data to the same base level knowing only prices?

Answer 1

This can be easily done by taking price index and by dividing each index value by the index value in the new base year you selected and then multiplying by 100.

For example, if you have two indexes with different base year (2001 and 2002 respectively):

Index    2000   2001   2002
  I_1     75     100   125
  I_2     50      75   100

You can create new indexes both with base year 2000 by:

Index    2000           2001          2002
  I_1     75/75*100     100/75*100    125/75*100
  I_2     50/50*100      75/50*100    100/50*100

Giving you 2 indexes both with 2000 base:

Index    2000           2001          2002
  I_1     100          133.33         166.66
  I_2     100           150           200