The Consumer Price Index (CPI) measures the rate of price change of goods and services purchased by households.
Consumer Price Index
CPI is made up of a basket of goods and services that are chosen to be representative of the actual purchases made by households.
Average spending patterns of households are determined through Household Expenditure surveys. Prices are collected for items in the basket of goods and the 'overall' change in prices published either monthly or quarterly (depending on the country). Although there are some differences from country to country, in general the CPI covers goods and services purchased for the purpose of consumption (ie use) by private households. It also provides information on the proportion of total consumers' expenditure on specific items. Expenditure that is not for consumption, e.g. for investment such as superannuation, shares and collectors' items, is usually excluded. Often, expenditure on residential sections is excluded because the land on which a house stands is not "used up" and is therefore a type of investment. Charitable donations, income tax, interest charges, and court fines may also be excluded, because they are not payments for a specific good or service which can be consumed. Some goods and services (such as paintings, antiques, pets and gambling) may simply be excluded because prices for them cannot be adequately measured. Usually two types of changes are published, the change from one month (or quarter) to the next and the change from one year to the next. A number of key facts related to the CPI are usually also published. Click text for further information on the Basket of Goods or Pricing surveys.
EXAMPLE
New Zealand
The following are examples from the March 2014 quarterly CPI publication for New Zealand.
1. Change from one quarter to another
In the March 2014 quarter, compared with the December 2013 quarter the CPI rose 0.3 percent.
2. Change from one year to another
From the March 2013 quarter to the March 2014 quarter the CPI increased 1.5 percent.
3. Published Key facts
Each national statistics office usually publishes a set of key points about CPI. For example, the following was published by Statistics New Zealand for the March 2014 period.
Key facts
Quarterly change
In the March 2014 quarter, compared with the December 2013 quarter:
- The consumers price index (CPI) rose 0.3 percent.
- Cigarettes and tobacco (up 10.2 percent) was the main contributor, following an 11.28 percent rise in excise duty in January.
- Housing and household utilities rose 0.7 percent, reflecting higher prices for purchase of newly built houses, rentals for housing, and property maintenance.
- Seasonally lower prices for international air fares (down 10 percent), vegetables (down 5.8 percent), and package holidays (down 5.9 percent) were the main downward contributors.
Annual change
From the March 2013 quarter to the March 2014 quarter:
- The CPI increase 1.5 percent.
- About half of the increase came from housing and household utilities (up 3.3 percent).
You can get the latest release from your statistics authority, for example the button below will take you to the most recent New Zealand CPI publication, you will need to be online for this to work.
The United Nations Statistics Commission website has CPI data from many countries. The button below will take you to this data at data.un.org.
END CPI EXPLANATION
Do not mistake the Consumer Price Index for something it is not.
What the CPI is NOT
The CPI is not a measure of price levels or average prices, it is a measure of price change. A price index is a series of numbers that show how a whole set of prices has changed over time. One index number by itself means nothing. Another index number is needed for comparison in order to calculate the movement between the two periods.
The CPI does not exactly represent an individual household's personal inflation (or deflation) experience. The goods and services used to calculate the CPI and their relative importance reflect purchases made by all New Zealand private households and are very unlikely to exactly match the purchases of any individual household.
The CPI measures household expenditure changes NOT expenditure changes for individuals.
The CPI is a not a general measure of inflation - it measures only the inflation faced by households.
However, many countries have online 'Inflation' Calculators' that use the CPI.
EXAMPLE
New Zealand
The Reserve Bank in New Zealand has an online calculator that gives the CPI Index Numbers, the total percentage change and average annual rate of change together with the decline in purchasing power for Food, Clothing, Housing, Wages and Transport as well as the overall CPI.
The link to the inflation calculator may change, if it does visit "www.rbnz.govt.nz" and search for it.
EXAMPLE
The image below of the online inflation calculator shows the change in the cost of food in New Zealand over the last hundred years (1914-2014).
South Africa
Statistics South Africa have a 'personal inflation' calculator that allows personal expenditure values to be inserted, then uses the CPI to calculate inflation for that individual.
The link to the inflation calculator may change, if it does visit "www.statssa.gov.za" and search for it.
END WHAT THE CPI IS NOT
A basket of goods and services that represents the purchases made by households as determined by a Household Expenditure Survey is selected to be priced.
The Basket of Goods
This CPI "basket" of goods and services, represents the price movements of the much wider range of items that households purchase. The number of items, and the process by which items are selected to be in the basket differs from country to country, but the factors considered for including an item into the CPI basket are generally that the selected goods and services:
- are a representative sample of goods and services purchased by consumers.
- have price movements which will accurately reflect those of a broad grouping of similar products.
- have a high probability of being available in the future in order to reduce the difficulties of pricing items that have been replaced.
EXAMPLE
New Zealand
In the most recent review in 2014 there were 709 goods and services in the New Zealand basket. These items, and their relative importance, are determined by the Household Expenditure Survey that measures the actual expenditure of individual households in the sample. The actual basket is a sample of all possible products, but representativeness of the items in it, and specific details of the product to be priced, is maintained by regular three-yearly reviews of the basket undertaken by Statistics New Zealand.. Items are introduced to (or removed from) the basket in response to the changing purchasing patterns of households over time. Although almost all household expenditure is represented in the basket, there are still some omissions (e.g. spending on pets, works of art and gambling). As a general rule spending on an item should be about 0.01% of total household spending before it is introduced into the basket. However, decisions about what should be added are also influenced by views on future trends. Committees selected to represent a range of community views are convened periodically to undertake independent reviews of the practices and methods used to compile the CPI
The link to this example may change, if it does visit "stats.govt.nz/browse_for_stats/people_and_communities/".
END BASKET OF GOODS
Items within the basket of goods are usually sorted into classes of similar items, then subgroups and finally groups.
Basket of Goods Groups
The number of groups and subgroups also varies from country to country. Some groups, such as the Food group, may be considered to be so important that they have their own indices published separately from the CPI.
EXAMPLE
New Zealand
The items in the New Zealand basket of goods and services are classified into 11 groups (then broken down into subgroups then classes):
- food
- alcoholic beverages and tobacco
- clothing and footwear
- housing and household utilities
- household contents and services
- health
- transport
- communication
- recreation and culture
- education
- miscellaneous goods and services (items not in the groups above) e.g. Insurance, Credit services, Personal care.
As there is a lot of public interest in food prices and many of these are affected by seasonal weather patterns as well as global markets, Statistics New Zealand publishes a monthly Food Price Index (FPI) that measures changes in food prices.
Statistics New Zealand also publishes an interactive Consumers price index visualisation tool so that changes in price and relative importance of goods and services in the CPI basket can be explored.
Click the link below, you will need to be online to access this resource.
The link to the CPI Tool may change, if it does visit "stats.govt.nz" and search for it.
MORE EXAMPLES
Tonga
The Tongan basket of goods and services is comprised of seven groups:
- food
- housing
- household operations
- clothing and footwear
- transportation
- tobacco, alcohol and kava Tonga
- miscellaneous goods and services
If you are online you can view this here: Tonga
South Africa
The basket of goods and services in South Africa has 12 groups:
- Food and non-alcoholic beverages
- Alcoholic beverages and tobacco
- Clothing and footwear
- Housing and utilities
- Household contents and services
- Health
- Transport
- Recreation and culture
- Education
- Restaurants and hotels
- Miscellaneous goods and services
- Residual
You can view a PDF of the CPI release here: South Africa
If you are online you can use the link to find your Statistics Authority. Once there search first for 'CPI' and then 'Groups' to find the groups used in your country.
END GROUPS
The prices used to calculate the CPI are collected in different ways in different countries usually by three main methods: visiting retail outlets, postal surveys, and the Internet.
Price Surveys
To ensure that the changes in prices are not due to changes in the quantity or quality of the goods and services purchased, whenever possible, prices are collected for exactly the same items in each time period. The price recorded is the price consumers pay for the specified quantity and quality of the good or service specified in the basket. In general, "specials" and "sale" prices are accepted but the prices of "obsolete" stock are not. Often prices for the "basket of goods and services" are taken from selected outlets (such as produce markets, supermarkets, department stores, speciality stores, liquor outlets, dairies, travel agents, dentists, mail-order outlets and service stations, etc.) across a number of locations. When all the prices have been checked for accuracy an average price is calculated for each item in each location. Movements in these averages are then weighted again, this time according to the population of each location to ensure that price movements in bigger locations have a greater effect on the CPI than those of smaller locations.
EXAMPLES
New Zealand
In New Zealand, prices are taken from selected outlets across 12 main urban areas (Whangarei, Auckland, Hamilton, Tauranga, Napier/Hastings, New Plymouth, Palmerston North, Wellington/Hutt, Nelson, Christchurch, Dunedin and Invercargill). They are collected either by Statistics New Zealand interviewers, by postal survey, off the Internet, by telephone or by e-mail. Some items, such as furniture and whiteware, are monitored on a quarterly basis. Others such as fresh fruit and vegetables and petrol and alternative motor fuels are collected weekly whereas items such as other food and non-food groceries, electricity, gas, tobacco, alcoholic drinks, newspapers and domestic and international airfares are surveyed monthly.
In 2014, about 120,000 prices were collected each quarter from about 3,000 retail outlets and 2,400 other businesses and landlords. Statistics New Zealand also conducted postal surveys and collect prices directly from the internet. Prices are collected weekly, monthly, quarterly, or annually, depending on the expected frequency of price changes exhibited by the goods or service.
Tonga
In Tonga, pricing is essentially limited to the main island, Tongatapu, where 75 pricing outlets are surveyed including the Talamahu market (agricultural produce), wharf (fish), super-market, Village stores, petrol stations, restaurants, airlines, etc. Pricing only takes place on one of the outer islands (Vava'u) and is not included in the published CPI.
United Kingdom
The Office of National Statistics (ONS) in the United Kingdom uses two types of survey:
Local collection is used for most items; prices are obtained from outlets in about 150 locations around the country. Around 110,000 quotations are obtained by this method. Normally, collectors visit the outlet, but prices for some items may be collected by phone.
Central collection is used for items where all the prices can be collected centrally by the ONS with no field work.
END PRICE SURVEYS
