price level
Every shop has thousands of individual prices, and they all move at once and in different directions — coffee up, electronics down, rent up, plane tickets down. To talk about money losing value, you need a single number that stands in for "prices in general." Imagine averaging the prices of everything an ordinary household buys into one figure, the way an index averages a stock market. That summary figure is the price level.
The price level is a measure of the average price of goods and services in an economy at a point in time, captured by a price index such as the consumer price index or the GDP deflator. On its own the number is meaningless — an index of 130 tells you nothing absolute. It only has meaning relative to a base period set to 100. If the index is 130 today and was 100 in the base year, the price level has risen 30 percent since then. Inflation is simply the rate at which this level changes over time.
The price level is the bridge between micro and macro: individual prices answer "why is this thing expensive?", but the price level answers "is money worth less than it used to be?". A subtle but important point: a rise in the price level is not the same as everyone being worse off. If wages and incomes rise with it, real purchasing power can stay the same. What hurts is when the price level outruns incomes, or moves so unpredictably that no one can plan.
A price index sets the base year to 100. If it reads 115 five years later, the price level has risen 15 percent over those five years — the same shopping basket that cost 100 dollars then costs 115 dollars now.
An index of 115 means the price level is 15 percent above the base year.
A price-index number is only meaningful relative to its base period (set to 100). The level alone says nothing; the change in the level is what matters.