Definition
The price level is a weighted average of the prices of goods and services across an entire economy at a given moment. Rather than tracking any single product, it captures the cost of a broad basket, allowing economists to talk about whether money is generally buying more or less than before.
It is most often measured through index numbers such as the Consumer Price Index or the GDP deflator. A rising price level signals inflation; a falling one signals deflation. Because it is an index, only changes over time carry meaning, not the raw number itself.
Why it matters
How it works
Statistical agencies define a representative basket of goods, record its cost, and express that cost as an index relative to a base year set to 100. If the index rises to 110, the general price level has increased by 10 percent since the base period.
Economists distinguish the price level (a stock at a point in time) from inflation (the rate of change in that level). A high but stable price level is harmless; a rapidly changing one disrupts contracts, savings, and planning.