**Index Number of Prices**

The index number of prices is a statistical measure used to track changes in the prices of a representative basket of goods and services over time. It helps in understanding the rate of inflation or deflation in an economy.

**Calculation of Index Number**

To calculate the index number of prices, we need to compare the current prices with the prices during a base period. In this case, the prices of all commodities in a place have increased by 1.25 times compared to the base period.

Let's assume the base period price index is 100. This means that the average price of the basket of goods and services in the base period is 100. Now, if the prices have increased by 1.25 times, the new price index can be calculated as follows:

New Price Index = (Price of basket of goods and services in the current period / Price of basket of goods and services in the base period) * 100

**Explanation**

The increase in prices by 1.25 times means that the new price index will be 125. This indicates that the average price of the basket of goods and services in the current period is 125% of the average price in the base period.

For example, if the base period price of the basket of goods and services was $100, then the current period price of the same basket would be $125. This shows a 25% increase in prices from the base period.

**Interpretation**

A price index of 125 indicates that the overall prices of goods and services in the place have increased by 25% compared to the base period. This increase could be due to various factors such as inflation, changes in supply and demand, or changes in production costs.

It is important to note that the price index is a relative measure and does not provide information about the absolute prices of goods and services. It is used to track the changes in prices over time and understand the overall trend in the economy.

125