THE INDEX OF RETAIL PRICES REVISION OF THE INDEX OF RETAIL PRICES - - PDF document

THE INDEX OF RETAIL PRICES

REVISION OF THE INDEX OF RETAIL PRICES INDEX OF RETAIL PRICES The revision of the Index of Retail Prices is a process p that is undertaken following the conduct of a Household Budget Survey (HBS), since the results

• f the HBS is used as the basis for the revision of the

RPI to determine:

1.

The Income Group that will be targeted

2.

The Items in the Basket of Goods Th i hi h i b ll d

3.

The areas in which prices are to be collected

4.

The weight for each Item in the Index

5

The weight for each Geographic Area surveyed

5.

The weight for each Geographic Area surveyed

THE REVISION OF THE INDEX OF RETAIL PRICES

With the completion of the 2008/2009 HBS, h I d f R il P i b the current Index of Retail Prices can now be

• revised. Such a revision entails the following

g Activities:

SUMMARY OF ACTIVITIES FOR THE REVISION OF THE RPI REVISION OF THE RPI

1

Analyze data from the HBS on Consumption Expenditure at

1.

Analyze data from the HBS on Consumption Expenditure at the Item Level

2.

Analyze data from the HBS on Consumption Expenditure at the Income Level the Income Level

3.

Determine the Scope of the Index : Target Income Group

4.

Determine the Items to be included in the Basket of Goods

5.

Compute the Weight of each Item

6.

Determine the System of Classification

7

Compute the Weight of each Section in the Index

7.

Compute the Weight of each Section in the Index

8.

Classify the Price Collection for each Item

9.

Determine the Geographical Scope of the Index D i h N B P i d

10.

Determine the New Base Period

SUMMARY OF ACTIVITIES FOR THE REVISION OF THE RPI (Continued) ( )

11.

Determine the most appropriate Computation of the Index

12.

Design a Computerized System for the computation of the g p y p Index

12.

Develop a Sample Frame for the selection of Establishments

14

Design Price Collection Sheets

14.

Design Price Collection Sheets

15.

Determine the Variety Descriptions for Price Collection Sheets

16.

Develop separate Indices (National, Trinidad, Tobago)

16.

Develop a Manual

17.

Conduct Meetings with Stakeholders

18.

Develop and Implement a Training Programme

18.

Develop and Implement a Training Programme

19.

Collect and process data under the New Base Period

TI ME PERI OD DEFI NI TI ONS TI ME PERI OD DEFI NI TI ONS

• Index base period: the period for which the index

number is written as 100 in the series of index number is written as 100 in the series of index numbers.

• Weight or expenditure base period(o): this is the
• Weight or expenditure base period(o): this is the

period to which the data used in the calculation of weights, refers. E.g. Household expenditure weights, refers. E.g. Household expenditure

• Price reference period (r): this is the period for

which prices were initially collected All future which prices were initially collected. All future prices collected are then compared to these prices in calculating the Index. g

The Index base period = Price Reference

period is January 2003 = 100

The Weight or Expenditure base period is May

g p p y 1997/May 1998 New Expenditure base period: 2008/2009 p p

Trinidad & Tobago Port of Spain San Fernando It (S b) S ti A A Item (Sub) Section Area Area Weight Index Item Index Weight Index Weight Index

ALL ITEMS

1000.00 182.86 262.65 185.76 128.70 167.11

FOOD AND

180.00 418.13 27.25 641.59 17.27 399.99

NON-ALCOHOLIC BEVERAGES

FOOD

156.20 459.74 22.74 739.08 14.79 444.75 BREAD AND CEREALS (ND) 31 21 187 27 4 00 202 99 2 79 188 34 BREAD AND CEREALS (ND) 31.21 187.27 4.00 202.99 2.79 188.34 Bread 202.76 White Bread 3.85 204.51 0.56 213.81 0.34 205.88 Whole Wheat Bread 0.54 197.09 0.16 205.61 0.02 178.19 Hops 1.12 199.47 0.12 200.00 0.18 200.00 Total 5.51 0.84 210.27 0.54 202.90

Prices recorded for the Index of Retail Prices

i i are the actual prices paid by consumers and therefore include indirect taxes such as VAT

Discounts are also taken into account provided

they are available to all consumers and are not restricted to bulk purchases or represent a h i h li f h d change in the quality of the goods.

The basket of goods and services are classified into

different categories. The system of Classification g y used was the COICOP (Classification of Individual Consumption by Purpose). These categories can be broadly given as follows:

Di i i

( F d d N Al h li B )

Division (e.g. Food and Non-Alcoholic Beverages) Group (e.g. Food) Sub Group (e g Bread) Sub-Group (e.g. Bread) Item (e.g. White Bread) Variety (e g Kiss Milk Slice 590g) Variety (e.g. Kiss Milk Slice 590g)

A price is recorded by a field officer for a particular variety of a

given item on a pricing sheet. Pricing sheets are distributed to field officers on the first Tuesday of every month and field

• fficers commence price collection on the following day.

P i f h I ll ll d f h (3)

Prices for each Item are generally collected from three (3)

• Retailers. For example, prices for all Items on a Food Sheet in a

particular area would be collected from three Retailers in that area As such in the case of a Retailer closing down every

• area. As such, in the case of a Retailer closing down, every

attempt should be made to locate an alternative Retailer.

Two weeks later, the sheets are returned to the office, where Two weeks later, the sheets are returned to the office, where

they are edited and entered onto an electronic worksheet for

• calculation. This is presently done in Excel, but will soon be

moved to a Database system to allow for the ease of retrieval of d t data.

POI NTS TO NOTE I N PRI CE COLLECTI ON POI NTS TO NOTE I N PRI CE COLLECTI ON

• 1. Proper detailed description of Items are required. For

example, units of an item (150 g or 110 ml); mustard – in plastic dispenser or glass bottle; beers – hot or cold and whether or not a deposit for the bottle is included in the price; clothing items as detailed description as the price; clothing items – as detailed description as possible. 2 Q li Fi ld Offi h h l i

• 2. Quality - Field Officers must ensure that when selecting

a substitute item, this substitute is as close in quality to the item being replaced As such once an Item is out of the item being replaced. As such, once an Item is out of stock in 2 consecutive time periods, a substitute item should be selected.

As recommended internationally, the Laspeyres method is used for the calculation of the Index.

For each item the following is calculated (May 2010 Index): For each item the following is calculated (May 2010 Index):

Weight of Item x Average Price (April 2010) x Average Price (May 2010) g g ( p ) g ( y ) Average Price (Jan 2003) Average Price (April 2010) = Weight of Item x Average Price (May 2010) Average Price (Jan 2003)

This result is added for all items, and this total is

then divided by the total sum of weights to get a ‘weighted average’ of price changes, that is, the Index.

This calculation is carried out for the various

sections of the Index (e.g. Food and Non- Alcoholic Beverages where the total sum of weights is 180) and for ‘All Items” in the Index ( f i h 1000) (sum of weights = 1000)

To calculate the Inflation Rate for May 2010

(CSO’s Methodology – Average/Average) = All Items Index Average for Jan – May 2010 x 100

All Items Index Average for Jan – May 2009

= 166 4 x 100 = 6 1% = 166.4 x 100 = 6.1%

156.9 To calculate the Inflation Rate for May 2010

(Central Bank’s Methodology – Year on Year)

A 2010 100

= All Items Index May 2010 x 100

All Items Index May 2009

= 172 9 x 100 = 9 6% 172.9 x 100 9.6%

157.8

Core Inflation refers to the Inflation rate after eliminating the effects of the most volatile sections of the Index.

Core Index for May 2010 = (All Items Index x 1000) – (Food Index x 180) 1000 180 1000 - 180 Core Index for May 2009 = (All It I d 1000) (F d I d 180) (All Items Index x 1000) – (Food Index x 180) 1000 - 180 Core Inflation for May 2010 = Core Inflation for May 2010 = Core Index May 2010 Core Index May 2009 Core Index May 2009

Inflation is a problem when it causes our Inflation is a problem when it causes our

purchasing power to fall. That is, if we need to spend more money to purchase the same p y p basket of goods and services over time, then inflation is adversely affecting the citizens of y g Trinidad and Tobago.

Effect of Inflation Rate

If however our incomes (wages and salaries) have

more or less kept pace with inflation over a period of time so that our purchasing power remains fairly stable, then inflation has very little direct impact on citizens except for the direct impact on citizens except for the inconvenience of handling more cash.

However even if incomes have kept pace with

inflation, high inflation indicates instability in the i d f i t d t ll h minds of investors and may eventually have a negative impact on the economy and therefore your wages and salaries y g