The National Statistics Office (NSO), the primary statistical arm of the government, is now in the process of completing the rebasing of the Consumer Price Index (CPI) for All Income Households to 2006. The 2006-based CPI is the ninth in the rebasing series.

The CPI is an indicator of the change in the average prices of a fixed basket of goods and services commonly purchased by an average Filipino household for their day-to-day consumption relative to a base year. The base year for the current CPI series is 2000.

As an indicator, the CPI is most widely used in the calculation of the inflation rate and purchasing power of the peso (PPP). Inflation rate measures the changes in the CPI over a specific period of time (usually a month or a year). The PPP, on the one hand, gives an indication of how much the Philippine peso is worth in a given period relative to its value in a base period.

The CPI series also serve as basis for economic analysis, for collective bargaining agreements, for wage adjustments, and for monitoring the effects of government economic policy on households.

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 the National Capital Region and in provincial capitals where there are BAS offices. The NSO, on the other hand, collects prices for the non-agricultural commodities and all other commodities not covered by BAS all over the country. The computation of the CPI, however, is the sole responsibility of the NSO.

Prior to the NSO CPI, the Labor Statistics Division of the Department of Labor constructed what was then referred to as the Cost of Living Index. The task of calculating said index was transferred to the Bureau of the Census and Statistics (BCS and now the NSO) on January 1, 1941.

The first series constructed by the BCS was in 1945. The Cost of Living Index series had 1941 as base year and covered only Manila. The market basket contained 66 commodities representing goods and services commonly purchased by low-income families (families living within minimum level of subsistence). This series lasted for 18 years (1945 to 1963).

In 1964, weights were based on the results of the 1961 Survey of Income and Expenditures and the average price for 1960-1962 was used as the base price. This series was referred to as the Consumer Price Index for Low-Income Families in Manila (families whose annual income did not exceed P2,400). The market basket was almost four times larger as it contained 244 items.

Since the first revision, the CPI has undergone several updating and rebasing exercises. Rebasing is necessary when the basket of the reference year no longer represents what is commonly purchased by the households. The CPI then becomes irrelevant and would tend to give wrong market signals. The CPI is an indicator that derives its usefulness from its representation of how much a typical market basket behaves over a specific period of time.

Previous CPI series had 1941, 1961, 1966, 1972, 1978, 1988 and 1994 as base years. The NSO came out with the results of its last rebasing exercise, shifting the base year from 1994 to 2000, in October 2002.

Rebasing an index is necessary to ensure that the barometer of economic phenomena is truly reflective of the current situation.

Economic, social and technological changes may have influenced Filipinos’ tastes and preferences and these, in effect may have resulted in changes in the consumption patterns of the population. As household expenditure patterns vary (they tend to spend less on some items and more on others), weights are used to ensure that the CPI reflects the relative importance of each item or group of items in the market basket. The weights are expressed as a proportion of household expenditure for an item to the total national expenditure.

The rebasing of the CPI from 2000 to 2006 is in consonance with the recommendation of the NSCB in its Resolution No. 2 series of 2009 (Approving the Synchronized Rebasing of Price Indices to Base Year 2006) to reflect the latest composition of goods and services consumed and availed of by households across provinces and regions of the country. The main data source of consumption pattern (CPI weights) for this latest rebasing was the 2006 Family Income and Expenditure Survey (FIES) while the composition of the provincial market baskets was based on the Commodity and Outlet Survey (COS) conducted in July 2008.

The COS covered 25,000 households, a subsample of the 2006 FIES. The survey interviewed the households for the detailed descriptions/updated specifications of the commodities/services they commonly consumed/availed of and the corresponding outlets for these commodities/services. The commodities/services with high frequency were selected as items to be included in the market basket of each province. The number of items under each commodity group noticeably varies across the provinces of the country. Abra with 226 items, has the least number of items in its market basket and Leyte has the biggest number with 677 items.

Methodological changes were also introduced in the 2006-based CPI taking into consideration the United Nations (UN) recommendations in the grouping of commodities in the market basket. For the first time, NSO adopts the UN Classification of the Individual Consumption According to Purpose (COICOP) in grouping the items in the CPI in order for the series to become more comparable with other countries.

The weights for the 2006-based CPI were derived from the expenditure values of the 2006 FIES. The survey covered 44,542 households. Derivation of provincial CPI weights uses the Small Area Estimation Method (model-based method) as regions were the domains in the 2006 FIES.

Food and non-alcoholic beverages has the highest weight among the major groups at 38.98 percent in the 2006-based CPI. This, however, has decreased from its share of 41.49 percent in 2000. Except for milk, cheese and eggs and food products not elsewhere classified, the shares of all the other food groups went down. In particular, the weight of rice declined to 8.92 percent from 9.36 percent.

Similarly, the share of housing, water, electricity, gas and other fuel, the second highest group, dropped to 22.47 percent in 2006 from 23.70 percent in 2000. Expenditure on rentals and materials for the maintenance and minor repair of dwelling were lower while those for water and electricity were higher.

Weights of two other major groups (clothing and footwear, and recreation and culture) also fell compared to their 2000 weights.

Six major groups, however, increased their shares in the 2006 CPI weights. Transport gained the biggest increase at 2.22 percentage points (7.81% from 5.59%) brought about by higher expenditure share in passenger transport by road. It was followed by restaurant and miscellaneous goods and services which went up by 1.49 percentage points (12.03% from 10.54%) due to bigger weights in meals, snacks, drinks and refreshment purchased outside the home and that of personal care items. The weight of the other four groups went up by less than one percentage point.

The Chart below presents a comparison of the national weighting pattern for the 2000-based and 2006-based CPI.

Table 1. CPI Weights for All Income Households by Commodity Group