Concepts and Scope of the Consumer Price Index
2.52 As noted previously in paragraphs 2.38–2.43 and in Chapter 1 , the primary uses of the CPI will determine the concepts and scope used to compile the index. This section provides a more detailed look at the different concepts used to compile the CPI, as well as scope and coverage issues.
2.53 While this chapter does not provide a detailed overview of SNA definitions and concepts, it should be noted that the SNA serves as the conceptual basis, or framework, for the CPI
1.1 Chapter 1 provides a self-contained overview of the uses and the basic steps for compiling the consumer price index (CPI). More than just a summary of the chapters to follow, Chapter 1 guides the reader through the compilation process and highlights best practices that are explained in greater detail in subsequent chapters. The flow of the chapter follows the different steps needed to develop and maintain a CPI program that better reflects the standards and best practices set out in the Manual.
The Consumer Price Index Manual: Concepts and Methods contains comprehensive information and explanations on compiling a consumer price index (CPI). The Manual provides an overview of the methods and practices national statistical offices (NSOs) should consider when making decisions on how to deal with the various problems in the compilation of a CPI. The chapters cover many topics. They elaborate on the different practices currently in use, propose alternatives whenever possible, and discuss the advantages and disadvantages of each alternative. The primary purpose of the Manual is to assist countries in producing CPIs that reflect internationally recommended methods and practices.
5.1 Several factors will determine the choice of which price collection methods a national statistical office (NSO) uses, taking into consideration efficiency, accuracy, and representativity of consumers’ purchasing patterns. For example, local price collection is costly but can have the advantage of covering a wide range of locations and items, particularly for food, alcohol, tobacco, and durable goods such as clothing, furniture, and electrical products. On the other hand, central collection, either at the head office or in regional offices, can be cheaper and may be used for products where there are national pricing policies, as for rail fares, or where prices cannot be observed directly in retail outlets, such as for many professional services. With regard to representing consumers’ purchasing patterns, the price collection method also needs to reflect methods of shopping. For instance, internet purchases or goods purchased through mail order and catalogs need to be properly reflected in the sample.
6.1 Chapter 6 focuses on the treatment of temporarily and permanently missing varieties and their prices. While Chapter 5 focuses on the collection of data, Chapter 6 highlights the important role of the price collector in the context of the treatment of missing prices and starts by providing an overview of the matched-model method (MMM). While the MMM serves as the underlying method regarding the treatment of missing prices, the chapter describes how the MMM can potentially fail, the consequences of this failure, and how to deal with the effects of such failure on price measurement.
8.1 The purpose of this chapter is to provide a general description of the ways in which consumer price indices (CPIs) are calculated in practice. The methods used in different countries are not exactly the same, but they have much in common. There is clearly interest from both compilers and users of CPIs in knowing how most national statistical offices (NSOs) actually calculate their CPIs.
3.1 A consumer price index (CPI) is usually calculated as a weighted average of the relative price changes of the goods and services covered by the index. The weights attached to each good or service reflect their relative importance as measured by their shares in the total consumption of all households. The weight determines the impact that its price change will have on the overall index. The weights should be made publicly available for the information of data users, to ensure public confidence in the index and enhance transparency. The International Monetary Fund maintains a CPI database that includes detailed weight data.1
4.1 To construct a perfectly accurate consumer price index (CPI), the price statistician would need to record the price of every variety of all the goods and services that are in the scope of the CPI. Because it is too costly and, in practice, impossible to regularly record all the prices of the universe in a timely manner, sampling techniques are used to select a subset of prices that eventually enter the index compilation. Consequently, a CPI compilation is based on samples.
7.1 When a new good or service is produced and consumed, there is a need for it to be included in the index as soon as possible, especially if the good or service will have relatively high sales. New products might have quite different price changes than existing ones, especially at the start of their life cycle. In the initial period of introduction of a new product, producers and retailers often set higher prices than might be attainable once the market settles into a competitive equilibrium. There is a related problem of obsolete products, as the price changes of such products may be unusual. The products will be at the end of their life cycle and may be priced at unusually low prices to clear the way for new models.
9.1 Consumer price index (CPI) weights should be updated on a periodic basis (see Chapter 3). The preferred interval is at least once every five years. This chapter discusses the processes and procedures for introducing a new basket and corresponding weights in the CPI as well as approaches for linking the new and previous CPI series following the introduction of new weights. It includes examples of the steps involved in linking CPI series with different price reference periods, methods to keep the current index reference period or shift to a new one and explores whether interim or partial weight updates might be implemented in the period between major surveys such as a Household Budget Survey (HBS).