"Maybe, there is a need to review the basket since the current one may be true only for the DE crowd..." This was the opinion of an analyst as reported in an article entitled "Consensus for change" penned by Arnold S. Tenorio which appeared on the September 4, 2000 issue of the Business World.

The CPI being released monthly by NSO is the "all-income" CPI at the national level, Metro Manila and areas outside Metro Manila. All-income refers to the average Filipino income-earning households and includes those belonging to the high- middle- and low-income brackets. This means that expenditures of all income-earning households are reflected in the current CPI weights. The index measures the changes in prices affecting households from all income groups, not only the "DE crowd", which would be those belonging to the bottom deciles in the income distribution.

The NSO also conducted a study to come up with a separate CPI for families belonging to the bottom 30 percent. Available figures with 1994 as base year are from 1997 to 1999. However, the series is not yet official and at best provides an idea of what happens when CPIs are computed for specific income groups.

To be able to come up with the CPI for the bottom 30 percent families, a different market basket was constructed along with a different set of weights to reflect the consumption pattern of the families belonging to this specific group. These weights (in percent) are compared with those for the "all-income" CPI as shown below. It should be remembered that the weights of the "all-income" CPI actually represent the average of all income groups.

Table A. Weight by Major Commodity Group, Income Group and Area
(Figures are in percent)

Commodity Group	Philippines		Metro Manila		Areas Outside Metro Manila
	All Income	Bottom 30%	All Income	Bottom 30%	All Income	Bottom 30%
All Items	100.00	100.00	100.00	100.00	100.00	100.00
Food, Beverage & Tobacco	55.12	71.55	45.51	63.63	58.85	71.63
Clothing	3.66	3.39	3.04	2.33	3.91	3.41
Housing & repairs	14.69	6.92	22.42	12.10	11.69	6.86
Fuel, light & water	5.74	5.59	6.57	7.50	5.41	5.57
Services	12.28	6.24	15.00	6.52	11.22	6.24
Miscellaneous items	8.51	6.31	7.46	7.92	8.92	6.29

• The percentage of food, beverage and tobacco consumption of the bottom 30 percent families was more than 15 percentage points (71.55% vs. 55.12%) higher than the average of "all-income" families for similar expenditures. It was only in this commodity group that the weight for the bottom 30 percent families was higher.

• The proportions allotted by the bottom 30 percent families to housing and repairs (6.92% vs. 14.69%) and services (6.24% vs. 12.28%) were about half that of similar expenditures of "all-income" families.

• Since the weights being used for the current "all-income" CPI constitute the average, it can be said that the weights for the average Filipino families are pulled down by the weights of the bottom 30 percent families since these are comparatively lower except for food, beverages and tobacco.

• It follows that the weights for the above-average income families will be higher for all commodity groups, except for food, beverages and tobacco, if a separate CPI were to be developed for these families.

Inflation Rate:

• The table below shows the derived annual inflation rates (in percent) for the "all-income" and bottom 30% families for the years 1998 and 1999.

Table B. Inflation Rate by Major Commodity Group, Income Group and Area: 1998 and 1999
(Figures are in percent)

Commodity Group	Philippines		Metro Manila		Areas Outside Metro Manila
	All Income	Bottom 30%	All Income	Bottom 30%	All Income	Bottom 30%
1998
All Items	9.7	8.6	10.0	9.4	9.6	8.6
Food, Beverage & Tobacco	8.8	7.8	8.4	9.4	8.9	7.8
Clothing	8.1	7.5	10.8	9.7	7.0	7.5
Housing & repairs	11.6	12.8	9.2	9.2	13.5	12.8
Fuel, light & water	5.3	7.5	5.1	4.8	5.3	7.6
Services	14.3	12.3	17.4	11.7	12.7	12.3
Miscellaneous items	8.5	9.7	10.7	11.5	7.7	9.7
1999
All Items	6.7	6.1	5.5	4.5	7.2	6.1
Food, Beverage & Tobacco	5.2	5.0	4.0	3.9	5.7	5.0
Clothing	6.3	6.7	5.7	4.9	6.5	6.7
Housing & repairs	9.3	12.8	5.4	5.4	12.1	13.0
Fuel, light & water	6.9	6.5	8.7	6.1	6.2	6.5
Services	10.5	10.4	8.5	8.8	11.4	10.4
Miscellaneous items	5.3	5.3	4.9	3.0	5.4	5.3

• The annual inflation rates from the "all-income" CPI were higher on average by only half of one percent to one percent from those derived from the "bottom 30 percent" CPI.

• It may be said that the inflation rate may generally be higher for those belonging to the above-average or upper income bracket because:

• the weights for non-food items can be assumed to be higher for the upper income brackets and

• the price increases for non-food items have been generally larger.

• Judging from the above results, the resulting inflation rates from a separate CPI for the upper income brackets are not expected to be double that of the "all-income " CPI. With meager resources is there still a need for a separate CPI for the affluent segments of society?

In summary, the present 1994-based CPI is reflective of the effects of changes in the prices of goods and services to the bigger and needier segment of the population. Therefore, the current CPI is still useful for monitoring inflation.

And yes, the current CPI series will be re-based.

Understanding the Consumer Price Index Further

1. What is the CPI?

   The Consumer Price Index (CPI) measures the changes in the price level of goods and services that most people buy for their day-to-day consumption.

2. What are the uses of the CPI?

   The CPI is most widely used in the calculation of the inflation rate and purchasing power of the peso. Changes in the CPI over a specific period of time (usually a month or a year), is the rate of inflation. Inflation is equivalent to a decline in the purchasing power of peso (PPP). The PPP gives an indication of the real value of the peso (how much it is worth) in a given period relative to its value in a base period.

   The CPI series, among others, is being used for economic analysis, for collective bargaining agreements, for wage adjustments, and for monitoring the effects of government economic policy.

   When an inflation rate of 4.6 percent is cited over the media, this usually refers to the year-on-year inflation rate, which measures the changes in CPI for the month compared to the CPI of the same month of the previous year. NSO releases both the year-on-year and the month-on-month inflation rates, the latter being a comparison of the CPI for the month with that of the immediately preceding month.

3. What does low inflation mean?

   Contrary to common knowledge, low inflation does not connote that prices of commodities are falling. It means that prices continue to increase but at a slow rate.

4. Are CPI and inflation rate the same?

   CPI is the index which measures price changes relative to a base year while inflation indicates how fast or how slow price changes over two time periods. Inflation is a derived estimate of the rate of change in the CPIs of two given periods, e.g, September 2000 vs. September 1999, or September 2000 vs. August 2000.

5. Which agency is responsible for the generation of the CPI?

   The National Statistics Office (NSO) and the Bureau of Agricultural Statistics (BAS) collect price data for the index. The BAS is responsible for collecting prices for agricultural commodities in Metro Manila and in the provinces. The NSO, on the other hand, collects prices for the non-agricultural commodities all over the country and all other commodities not covered by BAS. The computation of the CPI is the sole responsibility of the NSO.

6. What are the components of the CPI?

   a) Consider that there are 15 million households in the country. Assume that daily half or about 7.5 million would go to retail outlets in 1,600 towns and cities to buy food and other basic needs. Consider further that prices vary over location and over time. A kilo of rice in Isabela is different from a kilo of rice in Leyte. A kilo of pechay is priced differently at 5:00 a.m. and at 11:00 a.m. even on the same day in the same place. The whole universe of prices to be gathered for a particular day runs into the billions or much more.

   In the computation of the CPI, price quotations for goods and services that are included in a pre-determined or "fixed" market basket are being collected every first and third weeks of each month. The market basket refers to goods and services that are commonly purchased by consumers in a particular area. However, the market basket cannot and does not contain all the consumer goods and services in the economy but consists only of a sample of commodities which are used to represent all consumer goods and services in a given area. For example, the market basket for Batanes has 285 items; for Metro Manila, 705; and for Negros Occidental, 771. Prices are gathered from only 9,500 sample outlets out of 360 thousand nationwide.

   b) Is the impact of a 10 percent increase in the price of rice the same to the consumer as a 10 percent increase in the price of garlic? Which affects the consumer more: a ten percent increase in the price of rice or a 20 percent increase in the price of imported apples?

   The importance to inflation of the expenditures for each of the major commodity groups namely food, beverages and tobacco, clothing, fuel, light and water, housing and repairs, services and miscellaneous items is taken into account through their proportions to total family expenditures embodied in a set of weights. These weights are applied accordingly to the corresponding changes in prices.

   Hence, in the example, a 10 percent increase in the price of rice has a relatively bigger impact on inflation than a 10 percent increase in the price of garlic or a 20 percent increase in the price of apples because rice, being a staple food of Filipinos, constitutes a greater proportion to the total family expenditures than garlic, or apples.

7. How are these components determined?

   The Market Basket

   To be able to determine/update the market basket of a base year, a Commodity and Outlet Survey (COS) is being conducted by the NSO. In the COS, sample households are asked of the items they commonly consume and services they avail of. In 1995, the NSO conducted the COS to provide benchmark data for the updating of the market basket for the 1994-based CPI series.

   Likewise, NSO field personnel also regularly conduct an evaluation of these items to determine their availability and marketability from regular priced outlets. Thus, the market basket used in the construction of the CPI of a base year for all income households are being drawn from the combined results of the latest COS and the regular updating of the market basket.

   The Weights

   Weights are being assigned to commodity groups/sub-groups in the CPI to reflect the consumption priorities of households and the way they allocate resources to meet their needs. Benchmark data for the updating of the assigned weights are based on the final results of the Family Income and Expenditure Survey (FIES).

   The FIES is a nationwide survey being conducted by the NSO every three years to gather, among others, data on family income and expenditure levels and patterns. The last completed survey of this kind was in 1997.

   The Base Year

   The base year for the current CPI series is 1994. The year 1994 was chosen by the inter-agency Technical Committee on Price Statistics (TCPS). Compared with the other recent years, 1994 was perceived to be the year when the country was politically, economically and socially stable. It was the time when the country was slowly recovering from the economic crisis of 1990 and 1991 and the Philippines was recognized as an emerging tiger economy. Likewise, it was also in this year that the FIES and Census of Establishments (now Census of Philippine Business and Industry) which are bases of weights for various indices were conducted. Thus, the National Statistical Coordination Board (NSCB), upon the recommendation of the TCPS, issued NSCB Resolution No. 6, Series of 1994 requiring the synchronization of all indices to 1994.

8. How often is the CPI base year being updated?

   For the overall economy, it is important that consumption patterns are captured in a reference year and kept track over a period of time to provide basis in assessing the nation’s economic performance. Thus, for sound decisions and better governance, the base year of the CPI should be regularly updated to be more reflective of the existing conditions.

   The NSO came out with the results from the last re-basing exercise, shifting the base year from 1988 to 1994, in May 1998. The re-basing was done in view of the substantial changes in the socio-economic and political conditions as well as the emergence of numerous new products that have affected the consumption patterns of households. Previous CPI series had 1941, 1961, 1966, 1972, 1978, and 1988 as base years.

   The NSO intends to re-base to year 2000 but this will be made available only in 2002. This is because inputs coming from the 2000 FIES and the 2001 COS will only be available by then.

   The 2000 FIES data collection will be completed in January 2001. Its final results, particularly on detailed consumption patterns, will be available only towards the end of the year. This will be the basis for the new weights. Meanwhile, the 2001 COS final results are to be expected by the end of 2001. Its results will identify goods and services most commonly purchased by households and will be the basis for the market basket.

9. What are the costs involved in the re-basing the CPI to year 2000?

   The budget for the first round of the FIES which covers the period from January to June 2000 is estimated at close to P20 million; therefore the two rounds will cost about P40 million. The budget for the 1994 COS was P716 thousand, but due to lack of funds, it was packaged as a rider survey to the 3^rd quarter round of the Labor Force Survey. Relative to the FIES, the costs for the COS are minimal.

   Therefore, before any re-basing of the CPI can be done, special funding requirements of about P40 million should be available aside from the regular budgets for CPI calculation.