HICP Compliance Monitoring Report

Transcription

1 EUROPEAN COMMISSION EUROSTAT Directorate C: National Accounts, Prices and Key Indicators Unit C-4: Price statistics. Purchasing Power Parities. Housing statistics HICP Monitoring Report United Kingdom Monitoring visit of July 2014

2 1. Introduction In July 2014 Eurostat reviewed the United Kingdom s HICP compilation against the existing legal framework, approved HICP methodology and other guidelines and good practices in the field of consumer price indices. In addition, the review focussed on the follow-up on the recommendations of the previous compliance monitoring report on the visit in November The current report is based on the inventory of the sources and methods of the British HICP, the discussion at the Monitoring visit of 21 July 2014, the written response to the questionnaire after the Monitoring visit, the information obtained at an ONS visit to Eurostat 17 th February 2015, the meta data of the British HICP in Eurostat s dissemination database, the compliance monitoring report of the previous visit. The methodological approach for producing the British HICP is described in detail in the inventory the Office for National Statistics (ONS) supplied in December 2013 and updated in September This report has the following structure: for each methodological issue, first a very brief summary of the UK practice is given, mostly based on information provided by ONS. This is followed by Eurostat s assessment of compliance. Finally, Eurostat recommendations for improvement are made, if applicable. 2. Classification and coverage The classification used in producing the British HICP is COICOP. The specified goods and services are not further classified below the class level of COICOP (4 digit). The standards of Commission Regulation 1688/98 on geographic and population coverage are followed. The population comprises all private households, foreign visitors to the UK and residents of communal establishments. Expenditure by British households abroad is excluded. The goods and services covered by the British HICP correspond in general to the stipulations in Article 1(4) and (5) of Commission Regulation No 1687/98. The use of COICOP and the geographical and population coverage of the British HICP are in line with the legal requirements. 2

3 3. Sampling and representativity The goods and services to be sampled are selected by ONS, based on around 700 items which correspond to consumption segments. In addition, detailed specifications are provided for the approximately 300 price collectors in over 140 changing locations across the UK, plus by staff in the ONS central office product offers are collected each month. For most goods collected in physical retail outlets, the selection of the actual product offer within an outlet is purposive. In each outlet, collectors choose one variety representative of what people buy in this area from all potential product offers matching the specification. The decision is based on the shelf-space devoted to varying brands, information from the retailer on what is popular in the area and any personal knowledge of the collector. Clearly the product selected must meet the item description provided to the collector by the ONS. This approach results in a broad range of product offers being selected for each consumption segment. For insurances only new contracts are covered, not existing contracts. The choice of product offers is reviewed each January. Outlets are selected either by probability proportional to size (PPS) sampling or simple random sampling (SRS). PPS is used when there is a wide range of store sizes and a wide range of turnover. Outlet types such as market stalls, mail order, internet shops and petrol stations are included. A proportion of the sample is refreshed annually, with the whole outlet sample refreshed over a five-year period. Around prices are collected each month. The methodological approach for sampling and for ensuring representativity of the British HICP is in line with the legal requirements. Recommendations Insurances should also cover existing contracts. 4. Frequency of data collection In principle, price collection in the UK is monthly; for at least for 39 items the price collection is less frequent than monthly. The frequency of data collection of the British HICP is in line with the legal requirements. 3

4 Recommendations The ONS should check regularly if there are no monthly price movements for the prices collected quarterly or annually. 5. Index calculation The UK HICP is calculated using a formula that applies double-chaining. This issue is not treated in this report as it was agreed to address it separately. 6. Data collection and validation Most collected prices are actual price offers. For new cars, list prices minus any freely available discounts are recorded. Prices of internet purchases are also collected, accounting for approximately 10% of all retail expenditure. Local price collection is carried out on 'Index Day' - a Tuesday in the second or third week of the month, and on the day before and day after index day. Central price collection from major retail chains with national pricing policies takes place on the Thursday and Friday of the same week. Prices for motor fuels, which can be volatile, are averaged over the month, based on the prices of each Monday during the month. Prices for fresh fruit and vegetables are collected on Index Day. ONS is currently piloting a temporal collection for fresh fruit and vegetables on the Friday before Index Day, which provides a temporal split across two working weeks. The new timing for price collection will be implemented in If a product is out of stock for a third consecutive month or is known to be no longer available, the price collector will select a replacement product that month. If the replacement product is deemed to be not directly comparable to its predecessor, class mean imputation procedures are applied. A range of automated procedures are in place to validate the collected prices: field checks using hand-held computers, price change check, min-max check, data consistency checks, and outlier detection (Tukey algorithm). These checks are augmented by manual checking of prices that fail the automated checks, which includes the examination of comments by price collectors. The data collection process of the British HICP is in line with the legal requirements. However, the price collection for products which show sharp and irregular price changes is spread out only to a minimum extent; this practice, while in line with the letter of Article 3 (2) of Regulation 701/2006, remains in some tension with its spirit. 4

5 Recommendations For products which show sharp and irregular price changes within the same month, for example fruit, vegetables and airfare tickets, the price collection should preferably take place over a period of more than one working week. The ONS should check at regular intervals if list prices correctly reflect the evolution of transaction prices. 7. Administered prices and constant tax rates The list of administered prices for the compilation of the HICP-AP is transmitted annually to Eurostat. At the moment there are no known plans of any changes to the list of prices for goods and services concerned. The two main indirect taxes relevant for the HICP at constant tax rates are VAT and excises on specific products. These are incorporated in the British HICP-CT according to the methodology defined by Eurostat. The HICP-CT is transmitted following the same deadlines as those of the HICP. The treatment of taxes in the British HICP-CT is in line with the legal requirements. The treatment of administered prices in the British HICP-AP is in line with Eurostat s recommendations. 8. Discounts The requirements of Regulation 2602/2000 on price reductions are applied in the British HICP. Discounts directly accessible to every consumer are taken into account. Assuming that they are not significant, inducements are not taken into account. The treatment of discounts in the British HICP is in line with the legal requirements. 9. Weights The main source for the British HICP weights is the National Accounts of year t-2, following the standards set by Regulation 1114/2010. If necessary the weights are corrected with 5

6 information from the household budget survey. Where available, weights are used down to the individual price quote level. Weights are reviewed on an annual basis as part of the process of updating the basket of goods and services. The calculation of weights (sources, regular reviewing) in the British HICP is in line with the legal requirements. 10. Quality adjustment Several quality adjustment procedures are used by the ONS, such as (ranked by importance): direct comparison, class mean imputation, hedonic regressions (for personal computers, tablets, laptops, digital cameras and smartphones), imputation, quantity adjustment (for homogenous goods such as food and drink) option pricing (for cars) and overlap pricing. The methods used for quality adjustment of the British HICP correspond to the good practice established for the HICP. 11. Treatment of seasonal products Peaches, nectarines, patio tables and chairs, electric heaters, electric cooling fans, men's shorts, men's coat, women's formal top, women's coat, charcoal for BBQ, mower electric are considered as seasonal products. In all cases the all-seasonal estimation approach is applied. Vegetables, fish and footwear are not treated as seasonal products. The methods used for treating seasonal products in the British HICP are in line with the legal requirements. Recommendation ONS should check at regular intervals if vegetables, fish and footwear are not seasonal. 6

7 12. Treatment of special product groups The treatment of special product groups like actual rentals, cars, restaurants and accommodation, airfares and package holidays, telecom services, health, education, insurances, financial services is described in detail in the inventory. For package holidays, bookings in different months are regarded as fundamentally different items, each with its own weight and price. Price levels in any month can be compared with those in the preceding year for the same holidays, i.e. the price for a particular month s holiday changes only in the month in which the holiday is taken. For example, the change in the index between July and August depends upon the extent to which August prices this year are higher or lower than the comparable prices last August. The methods used for treating health, education, insurances, and financial services in the British HICP are in line with the legal requirements. The methods used for treating actual rentals, cars, restaurants and accommodation, airfares and for telecom services in the UK are in line with the good practice established for the HICP. For package holidays the applied approach is not compliant with the legal requirements of Regulation No 1749/96 Article 5 and 6, since prices for different products (like seaside and skiing holiday) are collected each month without quality adjustment. The ONS has initiated a review of this methodology, which is expected to be available end of There will be a parallel run in 2016 which will allow assessing the impact of the change. This method will then go live in Recommendation For package holidays the ONS should apply the agreed methodology of following the prices of the same products from month to month. 13. Follow-up of the recommendations of the previous CM report Several Eurostat recommendations following the previous compliance monitoring visit in November 2008 were implemented: The inclusion of the best-selling telecoms packages rather than the five cheapest ones. Better access to basic data from some outlets in order to ensure better coverage: low cost outlets are now covered. TV licences, road taxes and passport fees are now included in the HICP. Expenditure of foreign households on medical and education services are now properly taken into account. For new cars list prices are no longer used. Instead known discounts are deducted from the list prices. 7

8 Issues which are still open from the 2008 visit like For insurance only new contracts are covered. The coverage of the combined passenger transport sample is unchanged. This topic has been reviewed by ONS; according to ONS a reliable and robust measurement of combined passenger transport is not possible on a monthly basis. are included in the requirements and recommendations of this report. The issue of double chaining is discussed separately between Eurostat and ONS. 14. Improvements foreseen in future ONS has drawn up a pilot study that allows the collection of fresh fruit and vegetables to be extended to the Friday before collection day (Tuesday). This will be implemented in This new collection method will meet the legal requirements, but data collections longer apart than a few working days would be advisable. ONS is investigating the possibility of using web scraping for groceries from three major stores as a source for HICP for the future. 15. Overall assessment Overall, Eurostat considers that the methods used for producing the British HICP are of a good standard. Comparability to the HICP of other countries can be regarded as assured. However, further improvements are needed, following the recommendations outlined above: Recommendations: For products which show sharp and irregular price changes within the same month, for example fruit, vegetables and airfare tickets, the price collection should take place over a period of more than one working week. Insurances should also cover existing contracts. The ONS should check regularly if there are no monthly price movements for the prices collected quarterly or annually. ONS should check at regular intervals if vegetables, fish and footwear are not seasonal. For package holidays the ONS should apply the agreed methodology of following the prices of the same products from month to month. 8