THE INDEX OF RETAIL PRICES

Transcription

1 THE INDEX OF RETAIL PRICES

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3 REVISION OF THE INDEX OF RETAIL PRICES The revision of the Index of Retail Prices is a process that is undertaken following the conduct of a Household Budget Survey (HBS), since the results of 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 3. The areas in which h prices are to be collected 4. The weight for each Item in the Index 5. The weight for each Geographic Area surveyed

4 THE REVISION OF THE INDEX OF RETAIL PRICES With the completion of the 2008/2009 HBS, the current Index of fretail Prices can now be revised. Such a revision entails the following Activities:

5 SUMMARY OF ACTIVITIES FOR THE REVISION OF THE RPI 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 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 8. Classify the Price Collection for each Item 9. Determine the Geographical Scope of the Index 10. Determine the New Base Period

6 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 Index 12. Develop a Sample Frame for the selection of Establishments 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 19. Collect and process data under the New Base Period

7 TIME PERIOD DEFINITIONS Index base period: the period for which the index number is written as 100 in the series of index numbers. Weight or expenditure base period(o):thisisthe is the period to which the data used in the calculation of weights, refers. E.g. Household expenditure Price reference period (r): this is the period for which prices were initially collected. All future prices collected are then compared to these prices in calculating the Index.

8 The Index base period = Price Reference period is January 2003 = 100 The Weightg or Expenditurep base period is May 1997/May 1998 New Expenditure base period: 2008/2009

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11 Trinidad & Tobago Port of Spain San Fernando Item (Sub) Section Area Area Weight Index Item Index Weight Index Weight Index ALL ITEMS FOOD AND NON-ALCOHOLIC BEVERAGES FOOD BREAD AND CEREALS (ND) Bread White Bread Whole Wheat Bread Hops Total

12 Prices recorded for the Index of Retail Prices 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 change in the quality of the goods.

13 The basket of goods and services are classified into different categories. The system of Classification used was the COICOP (Classification of Individual Consumption by Purpose). These categories can be broadly given as follows: Division i i (e.g. Food and Non-Alcoholic li Beverages) Group (e.g. Food) Sub-Group (e.g. Bread) Item (e.g. White Bread) Variety (e.g. Kiss Milk Slice 590g)

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16 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 officers commence price collection on the following day. Pi Prices for each hitem are generally collected dfrom 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 attempt should be made to locate an alternative Retailer. 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 data.

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18 POINTS TO NOTE IN PRICE COLLECTION 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 possible. 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 stock in 2 consecutive time periods, a substitute item should be selected.

19 As recommended internationally, the Laspeyres method is used for the calculation of the Index. For each item the following is calculated (May 2010 Index): Weight of Item x Average Price (April 2010) x Average Price (May 2010) Average Price (Jan 2003) Average Price (April 2010) = Weight of Item x Average Price (May 2010) Average Price (Jan 2003)

20 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 (sum of weights = 1000)

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23 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 = x 100 = 61% 6.1% To calculate the Inflation Rate for May 2010 (Central Bank s Methodology Year on Year) = All Items Index May 2010 x 100 All Items Index May 2009 = x 100 = 96% x % 157.8

24 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) Core Index for May 2009 = (All Items Index x 1000) (Food Index x 180) Core Inflation for May 2010 = Core Index May 2010 Core Index May 2009

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26 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 basket of goods and services over time, then inflation is adversely affecting the citizens of Trinidad and Tobago.

27 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 inconvenience of handling more cash. However even if incomes have kept pace with inflation, high inflation indicates instability in the minds of investors and may eventually have a negative impact on the economy and therefore your wages and salaries

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