explain why index no. is called as economic barometer

The index numbers are known as economic barometer or economic indicators since they help in understanding the changes in economic conditions of the society. Index number are numbers which show by their variation, the change in magnitude which is not susceptible either of accurate measurement in itself or of direct valuation in practice.

Index number of prices play a vital role in measuring the general economic conditions of the society and is fixing the wages, Dearness Allowance as well as in the setting up of new industries. The index numbers provide some guideline that one can use in making decisions. Index number are highly useful in deflating i.e., they are used to adjust the original data for price changes, or to adjust wages for cost of living changes and thus transform normal wage into real wages.