Consumer Price Index (CPI) is an indicator of the change in the average prices of a fixed basket of goods and services commonly purchased by households relative to a base year. Prices are compared to a base year and weighted by the appropriate consumption pattern. When the basket of the reference year no longer represents what is commonly purchased by the households, the CPI becomes irrelevant and tends to give wrong market signals. Hence, it is necessary to update the CPI using a base year that reflects the typical market basket of the time.
Rebasing an index is necessary to ensure that this barometer of economic phenomena is truly reflective of current situation. Consumer taste, fashion and technology change over time causing the fixed market basket of goods and services to become outmoded. To capture such changes for a more meaningful price comparison, revision or updating of the fixed market basket, the sample outlets, the weights and the base year has to be done periodically. The CPI is an indicator that derives its usefulness in its representation of how much a typical market basket behaves over a specific time period.
|
The NSO CPI dates back to 1945 and has undergone several revisions. Prior to that, CPI, which was then referred to as Cost of Living Index, was constructed by the Labor Statistics Division of the Department of Labor. The task of calculating the index was transferred to the Bureau of the Census and Statistics (now the National Statistics Office) 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 Manila only. 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 from 1945 to 1963.
The first revision was made in 1964. New weights were based on the results of the 1961 Survey of Income and Expenditures while the average price for 1960-1962 was used as the base price. This new 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 contained 244 items.
Subsequent revisions were done in the following years:
1965 : With 1961 as base year. The series covered Manila only.
1970 : With 1966 as base year. This time, CPI was computed for various income groups: Low, middle and all-income groups. Coverage was extended to all provinces. Moreover, for Manila and suburbs, CPI for high-income group was also computed.
Market basket consisted of 249 items for low-income, 368 for middle-income, 242 for high-income and 479 for all-income groups.
1976 : With 1972 as base year. This CPI series was limited only to all-income households. It covered all regions and provinces in the country including the National Capital Region (NCR).
1982 : With 1978 as base year. Weights were derived based on the 1975 Family Income and Expenditures Survey (FIES) results updated to 1978 prices. This series covered all-income households. The market basket contained 407 items.
1992 : With 1988 as base year. Weights were derived from the expenditure data of the 1988 FIES. A market basket for each of the 13 regions was established with the number of items ranging from 384 (for NCR) to 651 (for Region IV). Unlike in previous series where the composition of the market basket was determined by a technical committee (the Inter-Agency Committee on Price Statistics), the market basket used in this series was determined through the 1985 Commodity and Outlet Survey (COS) which was conducted using the sample households of the 1985 FIES. The 1985 COS was the first survey of its kind in the country with the purpose of identifying the market basket by asking sample households the commodities and services that they consumed most of the time and the type of outlets where these commodities and services are commonly purchased or availed of.
1996 : With 1994 as base year. The expenditure data from the 1994 FIES survey results were used as weights. Individual provincial and city market baskets were constructed using the results of the 1994 COS undertaken by the NSO and the results of the validation work on the availability and saleability of the items in the 1988 market basket in the different geographical areas. There were no such baskets in the 1988-based series since the regional market baskets were used for the provincial CPIs.
2000 : With 2000 as base year. Updating activity actually started in October 2000. Updating of the 1994 market basket was done through an interview of key informants in various outlets as to the availability and saleability of items they sell. The expenditure data from the 2000 FIES were the basis of the new CPI weights. Final reference files (base price, market baskets and weights) were completed in 2002. Computation of the 2000 and 2001 CPI series started in October 2002.
The new series with 2000 as base year is part of the Office regular calendar of activities to update the present base year. The new series also features the use of separate provincial and city market baskets and the new set of 2000 weights also computed at the provincial and city level.
|
This section focuses on the features of the components of the new CPI series and the five steps involved in the rebasing/computing the CPI: (1) identification of the base year (2) determination of the market basket (3) determination of household consumption patterns (4) monitoring of prices of items in the basket and (5) computation of the CPI.
1. Identification of the Base Year
The first step in updating the CPI is choosing the base year.
The base period is the period, usually a year, at which the index number is set to 100. It is the reference point of the index number series.
The year 2000 was chosen as the base year for two major reasons: (1) because it was perceived to be more politically, economically and socially stable and (2) it was the year when the Family Income and Expenditures Survey (FIES) which is the basis of weights was conducted.
2. Determination of the Market Basket
The second step in CPI updating is the determination of the market basket. This activity is crucial because inadequate representation of the typical basket will give wrong signals as to the behavior of prices a very important factor in economic planning.
Market basket is a term used to refer to a sample of goods and services that are commonly purchased and bought by an average Filipino household.
The market basket used in the construction of the 2000 CPI was drawn from the results of the updating activity of the 1994 market basket. Updating of the 1994 market basket was done through an interview of key informants in various outlets as to the availability and saleability of the items they sell. Provinces and selected cities had their own market baskets.
The number of items in the 2000 market basket were almost similar with the 1994 market basket which ran to as high as 750 for Negros Occidental and 701 for NCR to as low as 362 for Camiguin and 285 for Batanes.
Market baskets for Guimaras, Biliran, Saranggani, Cagayan de Oro City and Apayao were added to the existing 84 provincial/selected city market baskets.
The percentage of new items in the new market basket ranged from 1.3 percent in Marawi City to 64.0 percent in Cebu City and Western Samar.
Retention measured as the percentage of the items in the old basket retained in the new basket was highest in Marawi City at 98.7 percent followed by South Cotabato at 98.0 percent and Lanao Sur at 97.6 percent. Moreover, Batanes and Sulu maintained the number of items in their old baskets in the 2000-based CPI.
3. Determination of the Household Consumption Patterns (Weights)
The third step in the CPI updating is assigning the weights to the commodity groups/sub-groups. This reflects the consumption priorities of households and the way they allocate resources to meet their needs. Moreover, 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.
The weights for the 2000-based CPI were derived from the expenditure data of the 2000 FIES, a nationwide survey that covered 41,000 households. Each province/city was considered a domain so much so that weights were generated for each of them. This was done to account for the differences in consumption patterns because of geographical location. The weight for each item of expenditure is a proportion of that expenditure item to the total national expenditure. The total (all items) national expenditure is equal to 100. Likewise, geographical weights were also determined where the weight of the region is equal to the sum of the weights of the provinces belonging to that region. The sum of the weights for the region is equal to the national weight.
Comparison of the 1994 and 2000 Weights by Area
(See Table)
Philippines
The share of food, beverages and tobacco (FBT) group to the total expenditure decreased to 50.03 percent in 2000 from 55.12 percent in 1994. The share of the food group also declined to 46.58 percent from 50.98 percent. Except for cereal preparations and meat whose shares correspondingly increased to 3.04 percent and 7.63 percent from their respective shares of 2.95 percent and 7.59 percent, the shares of the other food groups went down. The share for rice declined to 9.36 percent from 11.82 percent. Expenditure for beverages decreased to 2.25 percent from 2.65 percent and in tobacco, 1.19 percent from 1.49 percent.
The share of clothing dropped to 3.00 percent in 2000 from 3.66 percent in 1994. Likewise, the share of miscellaneous items also decreased to 7.33 percent from 8.51 percent due to the decline of the shares of household furnishing and equipment and household operations to 1.76 percent and 1.23 percent, respectively from their corresponding 1994 shares of 3.16 percent and 1.61 percent.
The shares of the rest of the commodity groups went up. Housing and Repairs (H&R) had a share of 16.80 percent in 2000 from 14.69 percent in 1994 as expenditures for rentals increased to 15.77 percent from 13.68 percent.
The share of fuel, light and water (FLW) rose to 6.95 percent in 2000 from 5.74 percent in 1994 mainly due to the higher expenditure for light at 3.75 percent from 2.74 percent.
The increase in the share of services to 15.89 percent in 2000 from 12.28 percent in 1994 was due to the higher expenditures for educational services, 3.83 percent from 2.93 percent; personal services, 2.06 percent from 1.75 percent; transportation and communication, 7.52 percent from 4.81 percent.
NCR
The overall weight for FBT slightly decreased from 12.74 percent in 1994 to 12.08 percent in 2000. Except for fruits and vegetables whose share slightly increased to 1.40 percent in 2000 from 1.26 percent in 1994, expenditure shares for all the other food groups declined. The expenditure share of tobacco also decreased to 0.19 percent in 2000 from 0.29 percent in 1994. The share of beverages in 2000 was almost similar to its 1994 weight of 0.61 percent.
The share of clothing decreased to 0.78 percent in 2000 from 0.85 percent in 1994 due to the decline in the shares of ready-made apparel and custom clothes.
The weight of H&R increased to 7.39 percent in 2000 from 6.27 percent in 1994 as expenditure shares for minor repairs and rentals correspondingly increased to 0.25 percent and 7.14 percent from their respective shares of 0.16 percent and 6.11 percent.
The share of FLW improved to 2.11 percent in 2000 from 1.84 percent in 1994 as the expenditures for fuel and light went up.
The share of services considerably increased to 5.79 percent in 2000 from 4.20 percent in 1994 as the weights of the following subgroups went up: educational services, 1.31 percent in 2000 from 1.04 percent in 1994; personal services, 0.89 percent from 0.67 percent; and transportation and communication, 2.93 percent from 1.74 percent.
The expenditure share of miscellaneous items dropped to 1.87 percent in 2000 from 2.09 percent in 1994 due to the decline of the shares of household furnishing and equipment, 0.43 percent from 0.78 percent and household operations, 0.26 percent from 0.32 percent.
Areas Outside National Capital Region (AONCR)
The weight of FBT went down to 37.96 percent in 2000 from 42.38 percent in 1994 primarily brought about by the reduction in the expenditure share of food alone to 35.30 percent from 39.15 percent. Except for cereal preparations and meat whose weights correspondingly increased to 2.25 percent and 5.31 percent in 2000 from their respective 1994 shares of 2.15 percent and 5.19 percent, the weights for all the other food groups went down. Expenditure shares for beverages and tobacco also declined to 1.64 percent and 1.01 percent respectively from their 1994 shares of 2.04 percent and 1.20 percent.
The share of clothing decreased to 2.23 percent in 2000 from 2.81 percent in 1994 as the weights of all its commodity subgroups also decline.
Overall weight of H&R increased to 9.41 percent in 2000 from 8.42 percent in 1994 as the expenditure share for rentals went up to 8.64 percent from 7.56 percent. The share of minor repairs dropped to 0.77 percent from 0.86 percent.
FLW expenditure share in 2000 increased to 4.84 percent from 3.90 percent in 1994. Fuel went up by 2.01 percent from 1.98 percent; light, 2.32 percent from 1.58 percent; and water, 0.52 percent from 0.34 percent.
The share of services increased to 10.10 percent in 2000 from 8.08 percent in 1994 as the shares of educational services grew by 2.53 percent in 2000 from 1.89 percent in 1994; personal services, 1.17 percent from 1.08 percent; and transportation and communication, 4.58 percent from 3.07 percent.
The group weight for miscellaneous items decreased to 5.46 percent in 2000 from 6.43 percent in 1994 due to the decline of shares in household furnishing and equipment, 1.33 percent from 2.38 percent and household operations, 0.97 percent from 1.29 percent.
4. Monitoring of Prices of Items in the Market Basket
The next step in the updating the CPI is to establish baseline information for prices of the items in the base year and monitoring of the prices of the items on a regular basis.
Collection of data for the CPI is done through the collective effort of the Bureau of Agricultural Statistics (BAS) and the NSO. BAS collects price data for agricultural commodities in NCR and in provincial capitals where there are BAS offices while NSO collects prices for all other commodities in all other areas.
Except for FBT which is monitored on a weekly basis in NCR, price collection is done twice a month. First collection phase is done during the first five days of the month while the second phase is on the 15th to 17th day of the month.
About 459,000 price quotations gathered throughout the country are entered into the computation of the monthly CPI.
Data are collected from the sample outlets (outlets or establishments where prices of commodities/services are collected or quoted) which were chosen using the following criteria:
- Popularity of an establishment along the line of goods to be priced - this means the sample outlet is publicly noted in the locality for selling goods included in the CPI survey forms and the outlet is patronized by the large segment of the population.
- Consistency and completeness of stock
Consistency of stock - the outlet has a constant, steady or regular stock of commodities listed in the CPI survey forms as well as of those commodities of the same kind and belonging to the same commodity.
Completeness of stock - the sample outlet carries in its stock many if not all of the items included in the CPI survey forms relative to the other outlets in the area.
- Permanency of outlet - the outlet to be chosen should be an established store or stall in the market area. It should not be an ambulant or transient vendor.
- Geographical location - the outlet should be in a convenient place and is accessible to the majority if not all consumers in the area.
5. Computation of the CPI
The formula used in computing the CPI is the weighted arithmetic mean of price relatives, a variant of the Laspeyres formula with fixed base year period weights. In computing the CPI, the formula is
| IV. ECONOMIC INDICATORS DERIVED FROM THE CPI |
1. Inflation Rate
Inflation rate is defined as the annual rate of change or the year-on-year change in the CPI. That is,
Moreover, to determine the difference of the inflation rates due to the change in market basket or due to the change in weight, separate CPI series were computed using the following combinations of market basket and weights:
- 1994 baskets using 1994 weights (1994=100);
- 1994 baskets using 2000 weights; and
- 2000 baskets using 2000 weights (2000=100)
The computed CPIs derived from these combinations were used to compare the inflation rates. The difference of the inflation rates of the 1994 series and 2000 series due to the change in market basket or due to the change in weight were then estimated using the following:
- Difference due to change in weights
Inflation rates derived from the computed CPI series using the 1994 basket and 2000 weights were compared to the inflation rates derived from the CPI series of the 1994 basket and 1994 weights (1994=100)
Inflation rates derived from the computed CPIs using the 2000 baskets and 2000 weights were compared to the CPIs using the 1994 basket and 2000 weights.
- Difference due to change in the market basket
Inflation rates derived from the computed CPIs using the 2000 baskets and 2000 weights were compared to the CPIs using the 1994 basket and 2000 weights.
2. Purchasing Power of Peso (PPP)
Another important economic indicator derived from the CPI is the PPP. The PPP is a measure of the real value of the peso in a given period relative to a chosen reference period. It is computed by getting the reciprocal of the CPI and multiplying the result by 100. That is,
|
| |
