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TECHNICAL NOTES ON THE
CONSUMER PRICE INDEX (CPI) |
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| I. HISTORICAL BACKGROUND OF THE CONSUMER PRICE INDEX |
| When the Bureau of the Census and Statistics (now the National Statistics Office) was created on August 19, 1940 by virtue of Commonwealth Act 591, it was authorized to collect, among others, information on prices. It assumed functions transferred to it by the Labor Statistics Division of the Department of Labor. One of those functions was the computation of the Cost of Living Index.
The Cost of Living Index was intended to measure the monthly average changes in the retail prices of goods and services customarily purchased by low-income families in Manila. It was based on a family budget study conducted by the Department of Labor in Manila in 1983 on families of wage earners, clerks and other employees with a monthly income of not more than P50.00.
In 1945, the Bureau of the Census and Statistics constructed the Cost of Living Index for Manila with 1941 as base year. The market basket was composed of 66 commodities that represented goods and services customarily purchased by a family whose manner of living was considered that of a minimum subsistence level.
Since then, the index has undergone several revisions. The first revision of the Cost of Living Index for Manila was made in 1964. The years 1960 to 1962 were selected as the base period and the base price was the average of the 1960, 1961 and 1962 prices. Weights were based on the results of the 1961 Survey of Family Income and Expenditures. The market basket consisted of 244 items. The index was then more aptly called the Consumer Price Index (CPI) for Low Income Families in Manila (families with annual income of not more than P2,400.00) rather than a cost of living index because it did not measure changes in kinds of amount of goods and services that this specific group of people bought, or changes in their tastes, income or manner of living or the total amount they spent for living; rather, the index purported to measure the monthly average changes in the retail prices of goods and services customarily purchased by these families. The following year (1965), the base period was changed to 1961.
Another revision was made in 1970. The base year was shifted from 1961 to 1966. Coverage was expanded to include various income groups. Consumer price indices were constructed for the low-, middle- and all-income households in each of the provinces as well as Manila and suburbs. Moreover for Manila and suburbs, CPI for high-income group was also constructed. The market basket consisted of 249 items for low-income, 368 for middle-income, 242 for high-income and 479 for all-income households.
In 1976, the CPI was again rebased with 1972 as base year. However this time, only one set of CPI series was constructed-- the Consumer Price Index for All-Income Households-- for each province and each region including Metro Manila or the National Capital Region. The market basket consisted of 459 items. In line with this new CPI series, NEDA Resolution No. 9 series of 1976 placed the responsibility of collecting price data of commodities that entered into the computation of the CPI on several government agencies. The BAEcon (now the Bureau of Agricultural Statistics or BAS) was responsible for collecting price data for all agricultural food items; the Trade Assistance Center (TAC) of the Department of Trade and Industry, for prices of all processed food and non-food items; the Central Bank of the Philippines (CB), for costs of transportation, utilities, services, rentals and other items not covered by TAC in the National Capital Region; and the National Census and Statistics Office (NCSO), for costs of transportation, utilities, services, rentals and other items in the market basket not covered by BAEcon and TAC in areas outside the NCR. The CPI for NCR or Metro Manila was computed by the Department of Economic Research of the Central Bank while CPI for areas outside Metro Manila and for the Philippines was constructed by NCSO.
Shortly thereafter when Letter of Instructions No. 1082 was issued by the President of the Republic of the Philippines in November 1980, computation of all consumer, retail and wholesale price indices starting January 1981 became the sole responsibility of the National Statistics Office.
Another revision took place in 1982 with 1978 as base year. As in the previous series, CPI for All-Income Households was constructed for each province and region including NCR. The market basket consisted of 407 items for the Philippines, 402 for Metro Manila and 394 for areas outside Metro Manila. Weights were based on the results of the 1975 Family Income and Expenditures Survey (FIES) updated to 1978 prices.
In 1992, the series was revised with 1988 as base year. Weights were based on the 1988 FIES. The market basket was determined based on the results of the 1985 Commodity and Outlet Survey (COS) unlike in previous series where the market basket composition was determined by a technical committee. The COS, which covered the same sample households of the 1985 FIES totaling 18 thousand, gathered data on goods and services (with complete specifications as to brand, packaging and unit of measurement) that a household bought during the year or usually bought and the outlets where these commodities were purchased. Modal items or items that appeared to be most commonly purchased by the households comprised the market basket.
For each of the 13 regions, separate market baskets for the bottom 30% and upper 70% income groups were constructed. Then the market baskets of the two income groups were combined to constitute the market basket for the all-income group.
The latest revision started in 1995 using 1994 as the base year. The weights were derived from the 1994 FIES of the National Statistics Office. The market basket used in the construction of the 1994 based CPI for all income households is a merged basket of (1) the results of updating the 1988 based market basket and (2) the combined baskets of the upper 70% and bottom 30% income group households drawn from the results of the 1994 Commodity and Outlet Survey (COS). The market basket was constructed for each province and selected city.
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| II. COMPONENTS OF THE CURRENT CPI SERIES |
| A. MARKET BASKET |
| The CPI market basket contains a sample of goods and services commonly purchased by a group of households in a particular area. The 1994 based CPI series has 74 provincial market baskets and 10 market baskets for 10 selected cities.
The number of items comprising the market basket for all-income group for each province/city is shown below:
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Region/Province No.of Items Region/Province No.of Items
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NCR 705 Region VII
Bohol 510
CAR Cebu 602
Abra 434 Negros Oriental 597
Benguet 464 Siquijor 384
Ifugao 364 Cebu City 545
Kalinga- Apayao 492
Mt. Province 405 Region VIII
Baguio City 454 Eastern Samar 462
Leyte 567
Region I Northern Samar 516
Ilocos Norte 532 Western Samar 511
Ilocos Sur 439 Southern Leyte 507
La Union 526
Pangasinan 607 Region IX
Basilan 509
Region II Zamboanga del Norte 598
Batanes 285 Zamboanga del Sur 625
Cagayan 565 Zamboanga City 558
Isabela 586
Nueva Viscaya 502 Region X
Quirino 413 Bukidnon 591
Camiguin 351
Region III Misamis Occidental 523
Bataan 546 Misamis Oriental 572
Bulacan 594
Nueva Ecija 677 Region XI
Pampanga 574 Davao del Norte 631
Tarlac 583 Davao del Sur 561
Zambales 558 Davao Oriental 518
Olongapo City 521 South Cotabato 629
Davao City 587
Region IV General Santos City 492
Aurora 461 Region XII
Batangas 568 North Cotabato 521
Cavite 622 Lanao del Norte 578
Laguna 633 Sultan Kudarat 516
Marinduque 502 Marawi City 395
Occidental Mindoro 553 Cotabato City 476
Oriental Mindoro 565
Palawan 553 ARMM
Quezon 601 Lanao del Sur 472
Rizal 647 Maguindanao 579
Romblon 467 Sulu 473
Tawi-Tawi 484
Region V
Albay 593 Caraga
Camarines Norte 534 Agusan del Norte 564
Camarines Sur 566 Agusan del Sur 498
Catanduanes 494 Surigao del Norte 526
Masbate 527 Surigao del Sur 514
Sorsogon 505
Region VI
Aklan 563
Antique 595
Capiz 591
Iloilo 667
Negros Occidental 771
Bacolod City 610
Iloilo City 508
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| B. WEIGHTING SYSTEM |
| Weights used in the current CPI series were derived from the results of the 1994 Family Income and Expenditures Survey (FIES). The weight is computed as the proportion of expenditure on a specific group of items to total expenditure.
Aggregated weights for the six major commodity groups are shown below:
Weights for the CPI (1994 = 100)
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Areas
Outside
Commodity group Metro Metro
Philippines Manila Manila
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All items 100.00 27.98 72.02
Food, beverages &
tobacco 55.12 12.74 42.38
Clothing 3.66 0.85 2.81
Housing & Repairs 14.69 6.27 8.42
Fuel, light & water 5.74 1.84 3.90
Services 12.28 4.20 8.08
Miscellaneous 8.51 2.09 6.42
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| C. BASE PERIOD |
| The CPI series constructed by NSO since 1945 has undergone several revisions. The 1994 based CPI, the current series, is the seventh
rebasing.
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| D. INDEX FORMULA |
| The construction of the CPI basically uses a Laspeyres Formula (fixed base year weights).
The formula is modified as the weighted arithmetic mean of price relatives. That is,
| Index = |
Sum((Pn / Po ) * (Po * Qo)) |
| ------------------------------------------- x 100 |
| Sum(Po * Qo) |
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| E. SAMPLE OUTLETS |
| Sample outlets are establishments where prices of sample commodities are quoted. There are about 9,500 outlets nationwide.
The outlets were selected according to the following criteria:
- Popularity of the establishment along the line of goods to be priced
- Permanency of outlet
- Consistency or completeness of stock
- Accessibility of outlet
The selected outlets are permanent sources of price data that cannot be changed at will unless necessary because of the following reasons:
- Closing of business
- Disappearance of item from the stock for more than three consecutive months or its permanent disappearance.
An outlet may be completely abandoned or partly only, ( i.e., for specific items only) if one or more items in the survey list disappeared from its stock. It is replaced with the nearest retail outlet, that is, within the vicinity of the replaced outlet. The choice of which outlet to choose is left to the discretion of the price canvasser using the criteria for regular outlet selection. Once a substitute outlet has been selected, the outlet becomes a permanent outlet for the succeeding survey rounds.
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| III. METHOD OF DATA COLLECTION AND PROCESSING |
| A. AGENCIES RESPONSIBLE FOR DATA GATHERING AND PROCESSING |
| The National Statistics Office (NSO) and the Bureau of Agricultural Statistics (BAS) of the Department of Agriculture collect price data for the computation of the CPI. BAS is responsible for collecting price data for agricultural commodities in Metro Manila and selected areas. NSO, on the other hand, collects price data for non-agricultural commodities throughout the country, and all commodities in areas not covered by BAS.
The computation of CPI, however, is the sole responsibility of NSO.
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| B. PERIODICITY AND METHOD OF PRICE QUOTATION |
| The survey of retail prices is undertaken simultaneously in all provincial capitals or cities where the NSO provincial offices are located and in about 600 municipalities with offices of the NSO District Statistical Officers/Statistical Coordination Officers (DSOs/SCOs). Two price quotations are collected twice a month, i.e., during the first five days and middle of the month in provincial capitals and four price quotations in municipalities outside the capital during the first five days of the month.
In Metro Manila, four price quotations are collected for each item in the market basket. For food items, price quotations are collected weekly from 4 outlets in 9 markets or a total of 36 price quotations. Price quotations for all unprocessed food items are collected every Wednesday while for processed food items, beverages and tobacco are gathered every Friday and Saturday. For non-food items, collection of price quotations is done twice a month, i.e., during the first five days and middle of the month from 4 outlets in 11 markets.
While price quotations for all items in the market basket in AOMM are collected monthly, those of tuition fees are gathered twice a year at the beginning of each school semester. In Metro Manila, price quotation for service charges (medical, dental, personal, recreational) are collected twice a year, in January and July and those of tuition fees at the beginning of each school semester.
New transportation and communication rates are readily accounted for (prorated according to number of days) once implemented in Metro Manila. In AOMM, these are accounted for in the succeeding month if the implementation date falls after the survey period.
Price data are collected through personal interviews from selected establishments such as stalls in public markets, sari-sari (variety) stores, grocery stores, department stores and supermarkets all over the country.
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| C. DATA PROCESSING |
| A decentralized system of data processing has been adopted by NSO. Preliminary monthly tables on provincial/city consumer price indices are prepared by NSO provincial offices before submitting price data to the Central Office for verification and computation of the city, provincial, regional and national CPI. Regional and provincial offices are also provided with final results of the CPI.
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| D. GEOGRAPHIC COVERAGE AND FREQUENCY OF DATA RELEASE |
| The National Statistics Office computes monthly CPI on the national, regional and provincial levels. Consumer Price Indices for Metro Manila and areas outside Metro Manila (AOMM) are also available. Results are available five (5) days after the reference month.
In addition to CPI, the office also releases data on inflation rates and purchasing power of the peso.
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| IV. DEFINITION OF TERMS |
A. Consumer Price Index (CPI)
Consumer price index (CPI) is a measure of change in the average retail prices of goods and services commonly purchased by a particular group of people in a particular area.
B. Market Basket
Market basket refers to a sample of goods and services used to represent all goods and services bought by a particular group of consumers in a particular area.
C. Base Period
Base period, usually a year, is the reference period of the index number. It is the period at which the index is set to 100.
D. Sample Outlets
E. Weight
Weight is a value attached to a commodity or group of commodities to indicate the relative importance of that commodity or group of commodities in the market basket.
F. Inflation Rate
Inflation rate (IR) is the annual rate of change or year-on-year change in CPI. That is,
| Inflation Rate (IR) = |
CPIn - CPIo |
| ------------------------ x 100 |
| CPIo |
where
CPIn = current month's index for all items CPIo = same month last year's index for all items
G. Purchasing Power of the Peso
Purchasing Power of the Peso (PPP) shows how much the peso in the base period is worth in another period. It gives an indication of the real value of the peso in a given period relative to the peso value in the base period.
| Purchasing Power of the Peso (PPP) = |
1 / CPI(All Items) * 100 |
H. General Wholesale Price Index
Wholesale price index (WPI) measures the monthly changes in the general price level of commodities (usually in large quantities) that flow into the wholesale trading system.
The 1978 based WPI series has a total of 378 commodities or items traded in the wholesale market. These items include producer's materials, consumer goods and capital goods which may either be raw materials, intermediate products or finished goods. Moreover, they may also be domestically produced (including exports) or imported for resale. These items are grouped according to the Philippine Standard Commodity Classification (PSCC).
The weights of the 1978 based WPI utilizes the value of sales of commodities traded in the wholesale market in 1978 as derived from the 1974 Input-Output tables. It covers only the National Capital Region or Metro Manila.
The current series, the 1985 based WPI has a total of 425 commodities, also covers only wholesale trade intermediaries in Metro Manila. The series uses the gross output from the 1985 Input-Output tables as weights. The items are also classified according to PSCC scheme. The weighted average of relatives method, basically the Laspeyre's formula is used in the construction of WPI.
The general WPI is available monthly 35 days after the reference month while the WPI for construction materials is available 15 days after the reference month.
Rebasing the WPI is on-going, as well as the expansion of its coverage to include Cebu City and Davao City, to represent Visayas and Mindanao, respectively.
I. Retail Price Index
Retail price index (RPI) is a measure of the changes in the retail price at which retailers dispose of their goods to consumers or end-users.
The current RPI still uses 1978 as the base year and covers only the National Capital Region (NCR) or Metro Manila.
While the 1972-based series was computed using the geometric mean without any weighting pattern, the present series is constructed using the weights based on the 1974 Input-Output tables on the values of expenditures of goods and services of consumers from the retail sector, estimated at 1978 prices. The weighted average of relatives method, basically the Laspeyre's formula, is used in the computation of the index.
The present market basket has a total of 479 commodities grouped according to the Philippine Standard Commodity Classification (PSCC).
The general RPI is available monthly 35 days after the reference month while the RPI for construction materials is available 15 days after the reference month.
Rebasing of the RPI to 1994 is now being undertaken.
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| V. LIST OF REGIONS AND PROVINCES |
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NATIONAL CAPITAL REGION (Metropolitan Manila Area) - City of Manila, Quezon City, Kalookan City, Pasay City, Makati City, Mandaluyong City, San Juan, Malabon, Navotas, Valenzuela City, Las Pinas, Muntinlupa City, Paranaque, Marikina City, Pasig City, Pateros, Taguig
CORDILLERA ADMINISTRATIVE REGION (CAR) - Abra, Benguet, Ifugao, Kalinga- Apayao, Mountain Province, Baguio City
REGION I (ILOCOS REGION) - Ilocos Norte, Ilocos Sur, La Union, Pangasinan
REGION II (CAGAYAN VALLEY) - Batanes, Cagayan, Isabela, Nueva Vizcaya, Quirino
REGION III ( CENTRAL LUZON) - Bataan, Bulacan, Nueva Ecija, Pampanga, Tarlac, Zambales, Olongapo City
REGION IV ( SOUTHERN TAGALOG) - Aurora, Batangas, Cavite, Laguna, Marinduque, Occidental Mindoro, Oriental Mindoro, Palawan, Quezon, Rizal, Romblon
REGION V ( BICOL) - Albay, Camarines Norte, Camarines Sur, Catanduanes, Masbate, Sorsogon
REGION VI (WESTERN VISAYAS) - Aklan, Antique, Capiz, Iloilo, Negros Occidental, Iloilo City, Bacolod City
REGION VII (CENTRAL VISAYAS) - Bohol, Cebu, Negros Oriental, Siquijor, Cebu City
REGION VIII (EASTERN VISAYAS) - Eastern Samar, Leyte, Northern Samar, Western Samar, Southern Leyte
REGION IX ( WESTERN MINDANAO) - Basilan, Zamboanga del Norte, Zamboanga del Sur, Zamboanga City
REGION X ( NORTHERN MINDANAO) - Bukidnon, Camiguin, Misamis Oriental, Misamis Occidental
REGION XI ( SOUTHERN MINDANAO) - Davao del Norte, Davo del Sur, Davao Oriental, South Cotabato, Davao City, General Santos City
REGION XII ( CENTRAL MINDANAO) - Cotabato, Lanao del Norte, Sultan Kudarat, Cotabato City, Marawi City
REGION XIII (Caraga) - Agusan del Norte, Agusan del Sur, Surigao del Norte, Surigao del Sur
AUTONOMOUS REGION IN MUSLIM MINDANAO (ARMM) - Lanao del Sur, Maguindanao, Sulu, Tawi-Tawi
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