INEbase / Society / Standard, quality and conditions of life / New system CPI Base 2001

What is a base change?

The objective of the CPI and the demandable qualities of this indicator  

The implementation of one new CPI base means a rupture in the continuity of the series of prices indices that are published.

The Consumer Price Index (CPI) which is published monthly has the objective of measuring the development of the price levels of consumer goods and services acquired by resident households in Spain. The precision with which this measurement is carried out depends on the two qualities that the whole CPI must contain: representativity and temporary comparability.

The degree of CPI representativity is determined by the adaptation of this indicator to the economic reality of the day; thus, the variation rate calculated will be more approximated to the evolution of the set of economic prices the more elements selected for measurement for consumer behaviour guidelines are adapted. To achieve this, the articles selected that will form part of the shopping basket must be those most consumed by the majority of the population, the sample establishments must be the most visited and the importance relative to each article in the shopping basket must respond to consumption tendencies of households. The better the selection of these elements the more representative this indicator is considered.

On the other hand, it has to be remembered that the CPI is an indicator that only has sense when comparisons are compared over time; in fact the index number hardly has significance if it is not accompanied by a comparison with indices from other periods of time to obtain the corresponding variation rates (it may be a month, a year or any other moment tin time). Thus, the other quality attributable to the CPI is the temporary comparability: this refers to the need that all elements that define the CPI remain stable over time except, logically, the prices collected monthly. In this way, any variation in the CPI is only due to the price changes of the articles in the shopping basket and not to any change in the methodological content of this indicator.

What is a system of Consumer Price Indices. Elements that form a part of it  

A CPI system is defined as the set of statistical elements and methods necessary to calculate this indicator. When its design is being planned, the two qualities described were considered as guidelines in such a way that any decision adopted when establishing the sample and methodological content must be taken towards achieving the same. The most noteworthy elements that define a CPI system are the following:

THE SHOPPING BASKET. This is the sample of articles for which prices will be collected monthly and whose development represents all consumer prices in the economy. The selection is carried out according to the importance of each one, measured from the expenditure made.

THE WEIGHTINGS. They represent the relative importance that each article in the shopping basket has compared with the others; the parameter that is used for this is expenditure made by families resident in Spain. This information is obtained from the Continuous Family Budget Survey.

THE SAMPLE OF MUNICIPALITIES And ESTABLISHMENTS. The sample of municipalities is established by virtue of the size of the population, in such a way that the municipalities selected represent the total of the same. For its part, the establishments selected must meet a series of basic characteristics such as the affluence of the public or the length of time its lasts.

THE METHODOLOGICAL APPARATUS. This deals with a variety of aspects such as the index general calculation formula, the specific treatments of certain sets of articles or instruments to carry out quality adjustments.

Why is a base change made  

As stated, once the CPI system is implemented the elements that define it must remain stable to achieve comparability over time. Nevertheless, in practice all factors that determine the elements described are in permanent change, which means that the said elements will lose their current nature with the passing of time. In this way, it seems logical that the shopping basket selected and the weightings assigned to each one of the components will lose representativity, to a greater extent in those sectors that change the most; something similar would occur with the sample establishments and even with the municipalities selected, if movements in the population have occurred from the implementation of the system.

The base change operation mainly consists of, revising and updating each one of these components and determining the best options to achieve a specific and representative indicator that adapts to the tendencies of the economy. Up to the entry into force of the CPI, base 2001, once all the necessary elements for the calculation of this indicator have been defined these remained stable over the time that the system is in force. In this way, the CPI had a fixed reference that facilitated the temporary comparisons.

However, if the period of time in which a base is excessively long remains invariable, one runs the risk that the CPI starts to be a measure deficient of inflation. This, it may be that an article of the shopping basket stops being consumed, or is consumed less (or more) within the same. It may also be that new products appear on the market, or that the general consumption structure of Spaniards varies because their income or preferences have changed.

What novelties the new system 2001 offers  

Traditionally, the CPI revised its weightings and its shopping basket every eight or nine years; this was because the source used for it was the Base Family Budgets Survey (BFBS) whose periodicity was that which marked the two CPI base changes. Therefore so that the changes in the behaviour of consumers could be collected it was necessary to wait until the following base change when the CPI would be adapted to these trends. Evidently, in some cases the time period was excessively long.

The solution to this possible loss in representativity is the continual update of at least two of the basic elements: the shopping basket and the weightings structure. However, too frequent an update would mean losing the factor fundamental to the CPI, comparability over time. If the shopping basket is revised monthly, for example, a composition fully adapted to the trends of consumers will be obtained but it cannot be said what the real evolution of the same have been as there would not be comparative elements. It is necessary therefore to look for an intermediate point in which a representative sample of the market articles and their weightings are obtained and an inflation datum that serves to know that this is happening in the economy may be obtained. With this objective the CPI, base 2001 was conceived.

The system that entered into force the present year has as its most important characteristic the rapid adaptation to the structural changes of the market, both the consumption tendencies and the composition of the basket. This system continues to use the Budget Survey as the main source, however there is something that is done differently from the other CPI systems known to date: their continuity.

Up to 1997 there were two family budget surveys: a continuous survey with quarterly periodicity and the basic, that is carried out every eight or nine years. From this year these two surveys were replaced by just one, whose periodicity was quarterly and the information that it supplies is nearer to the basic survey as to the level of detail. This new survey, known as the Continuous Family Budgets Survey (CFBS), supplied the necessary information to carry out the update of the updates as well as the renewal of the composition of the shopping basket. But, apart from this, it makes the permanent update of the weightings as well as the revision of the shopping basket possible.

Thus, with the entry into force of the CPI, base 2001, a new CPI calculation system has started whose most important characteristics are their dynamism and their current nature. This is a CPI which is more dynamic than its predecessors to the extent that it annually revises the weightings for certain levels of functional breakdown and will include in the shortest possible period any change detected in the market components whether this is the appearance of new products, changes in the consumption structure or in the sample of municipalities or establishments.

But, moreover, this will be a more current CPI as it will revise its methodological system permanently with the objective of improving it. For this, one will be in contact with the different academic forums and national and international producer organisations.