Data Liberation Initiative Price Indexes at Statistics Canada Gylliane Gervais March 2009.

Data Liberation Initiative

Price Indexes at Statistics Canada

Gylliane Gervais

March 2009

What is a price index?

• An indicator of the rate of price change over a specified period (month, quarter, year)

– CPI monthly in Canada, quarterly in Australia

• Comparison of price level through time– Today in relation to the base year, ex. 2002 = 100– The most frequently quoted indicator is the 12-month change

(not affected by seasonality and collection periodicity)

• …but can also be in spatial terms– Ex. Canada = 100 (city in relation to the Canadian average)– International Comparison Program (between countries)

Main price indexes published• Consumer (products)• Industrial products• Raw materials • Construction

– Union wage rates – New housing – Non residential buildings

• Machinery and equipment • Farm products

– Agriculture Division• Exports and imports of merchandise

– ‘Goods’ in SNA and Balance of payments parlance– International Trade Division

New price indexes soon to be published

New quarterly indexes to be published in fall 2009:

• Wholesaling margins

• Retailing margins

• Truck transportation

• ‘Commercial’ rent– Non-residential buildings (i.e. commercial and industrial)

• Leasing of machinery and equipment

What is the Consumer Price Index (CPI)?

• An indicator of changes in consumer prices obtained by comparing the cost of a fixed basket of goods and services through time

– In relation to a base year– Target population: private households in urban and rural areas – Fixed basket in terms of quantity and quality

• Roughly 60 000 prices collected each month– Of which + 10 000 rents (through the LFS)

• Monthly release, 15-20 days after reference month

• Never revised

All items CPI, Canada (2002=100) 1992 to 2008

• 1992 84.0• 1993 85.6• 1994 85.7• 1995 87.6• 1996 88.9• 1997 90.4• 1998 91.3• 1999 92.9• 2000 95.4• 2001 97.8• 2002 100.0• 2003 102.8• 2004 104.7• 2005 107.0• 2006 109.1• 2007 111.5• 2008 114.1

80

85

90

95

100

105

110

115

How is the CPI used?

• To measure inflation– Most commonly quoted measure of inflation– Key indicator for monetary policy

• To deflate series expressed at current prices– Ex.: consumer expenditure in GDP, retail sales– By dividing a monetary value by an index

• To index or adjust monetary values for inflation– Ex.: contracts, wages, pensions, allowances, tax brackets etc.– By multiplying a value by an index (reverse of deflation)

How is it constructed?

• Define the basket consumed by the target population–Required to select representative products for each

component and to fix weights for those component

• Establish specifications for these products–Mild cheddar cheese, 520 gr., generic or store brand, yellow

or white…

• Select outlets where prices will be collected

• Determine collection frequency

Base year of the CPI

• The base or reference period refers to the fixed period to which prices of the current period will be compared– The existing base year of the CPI is 2002– Shown as (2002 = 100)

• Usually changed every 5 years

• Change of base year– Does not affect the change in an index over a given period– Only affects level of the index

• Base year of index reference year of the basket

Basket of the CPI

• Current basket reflects 2005 household expenditure patterns– Introduced at the same time as the 2002 base year in 2007

• Based on the annual Survey of Household Spending– Sample of 25 000 households, national in scope

• Also updated every 4-5 years– Could be updated annually (ex.: France, Sweden)

• A recent basket is more important than a recent base year to ensure the quality of the index

– Updating of weights of basic classes with new basket– Between baskets, it is possible to update basket components

and to modify weights

Content of the basket• Constituted by a sample of goods and services purchased by consumers

• Selected products must have a sufficient weight in household spending to be taken into account in the index

– At least 0.01%

• Assumption: price movements of uncollected items are well represented by other products in same category

– Prices of the 200 g of garlic butter (not in the sample) and the 450 g unsalted butter (in the sample) will behave similarly

Content of the basket• Some goods and services are excluded from the basket:

– Goods and services financed through taxes• Ex.: medical care

– Life insurance premiums• Premiums for vehicle and property insurance are included

– Financial investments, contributions to pension plans

– Used goods

– Interest paid on consumer loans

– Donations

– Lotteries and games of chance

– Illegal goods and services

Classification of goods and services

• The content of the basket follows a hierarchical structure called ‘classification of goods and services’

• It serves as the framework around which work is organised– Calculation of weights– Price collection– Calculation of indexes– Analysis and presentation of results

• Made up of 8 major categories, the ‘major components’

• At bottom level, the structure has 168 basic classes – Group of products deemed homogenous with respect to price change

Major components

• Food• Shelter• Household operation and furnishings• Clothing and footwear• Transportation• Health and personal care• Recreation, education and reading• Alcoholic beverages and tobacco products

CPI weights –2005 basket Major components as shares of total expenditure

17.0

26.6

11.45.5

19.9

4.8

12.23.1 Food

Shelter

Household operations andfurnishingsClothing and footwear

Transportation

Health and personal care

Recreation, education andreadingAlcoholic beverages andtobacco products

Selection of products• The 168 basic classes are broken down into more than

600 goods and services• There are +1000 product specifications• The selection of a product is judgemental, and takes into

account the following criteria:– Its price movement should represent the price movement of

other prices in the category

– It has to be on the market for a reasonable period• Products with the largest market share are commonly

selected

Frequency of price collection

The frequency of price collection depends on the volatility of the price and the weight of the component

• Gasoline: 4 times a month

• Seasonal products: collected in season

price kept fixed between collections

• Paid rents Monthly collection

• Imputed rents No explicit index

Price of related expenditure, variable Property taxes, maintenance and repairs

Geographic coverage

• Indexes calculated for Canada, 10 provinces, Whitehorse, Yellowknife, Iqaluit and 11 large cities

• Geographic coverage of collection varies with the product:– Prices heavily influenced by local market conditions or regulated

by local authorities collected in more than 70 cities• Water, rents and property taxes

– Prices not determined by local factors collected in a few cities • Compact discs, cars

– Prices set centrally collected from provincial or national agencies• Vehicle registration

CPI versus Cost-of-living index

• The CPI is not a cost-of-living index– A cost-of-living measure represents the amount of money

needed to maintain a constant standard of living– It allows for substitution between products

• According to consumer’s preference

• The CPI is based on a fixed-basket concept (fixed weights for life of basket) and does not allow for substitution, which introduces an upward bias

• To limit the problem, the CPI weights are updated in general every 4 years

What is published?

• The index with its reference period– All items index, Canada, Dec. 2008 114.1 (2002 = 100)

• The % change in relation to the previous month’s index – Decrease of 0.4 % (seasonally adjusted) in December 2008

• The % change in relation to same month of previous year– Increase of 1.1% between January 2008 and January 2009

• The % change between the annual average indexes of the calendar years

– Increase of 2.3% between 2007 and 2008

Other published information

• Seasonally adjusted indexes– All-items, 8 major components, 3 special aggregates

• Spatial or inter-city price indexes – 11 cities

• Average retail prices for Canada– 58 goods, mostly food, some household products and

toiletries, and cigarettes

• Average retail prices of gasoline and fuel oil– 18 cities

Information on the CPI

•The consumer price index (cat. no. 62 001 XPB, monthly)•The Daily Free on Internet: http://www.statcan.ca/cgi-bin/downpub/listpub_f.cgi?catno=62-001-XIB2006008

Reference documents•Your Guide to the Consumer Price Index (cat. no. 62-557-XPB)Free on the Internet through the Daily or IMDB:http://www.statcan.ca/cgi-bin/downpub/listpub_f.cgi?catno=62-557-XIB1996001•The consumer price index reference paperUpdate based on 1992 expenditures (cat. no. 62-553 Occasional)Free on the Internet through the Daily or IMDB:http://www.statcan.ca/cgi-bin/imdb/p2SV_f.pl?Function=getSurvey&SDDS=2301&lang=fr&db=IMDB&dbg=f&adm=8&dis=2#4

•Electronic databank: CANSIM•Internet : www.statcan.gc.ca