INEbase / Society / Standard, quality and conditions of life / New system CPI Base 2001
Reference period of weightings
General calculation method
Changes in quality
Inclusion of offers and sales
The Consumer Price Index (CPI) requires the selection of a sample of goods and services which is representative of the different consumer behaviours of the population for its elaboration, as well as the weightings structure that defines the importance of each of these products. As in the majority of countries, the Spanish CPI obtains this information from the Family Budget Survey (FBS), which was carried out for the last time during the period of April 1990 and March 1991; this survey is the one that was used to carry out the previous CPI base change.
From then the behaviour of consumers has changed considerably whether it is because tastes or fashion have changed, their capacity to buy or because new products have appeared in the market towards those that were spending. All these changes must reflect in the composition of the CPI and in their weighting structure; it is for this reason for that it is necessary to carry out a base change that facilitates a better adaptation of this indicator to the current economic reality.
From the 2nd quarter of 1997 the new Continuous Family Budgets Survey (CFBS) was implemented with the objective of replacing what was being carried out quarterly and the Basic Survey which was done in periods of between eight and nine years which was that used for the different CPI base changes.
This new survey facilitates making information available on the expenditure of families in a more detailed way than its predecessor with a greater periodicity than the Basic Survey. This means that the new CPI system whose general lines are presented in this document departs from a conceptual planning which is different from all previous systems.
On the one hand, its dynamism, is notable as one will be able to update weightings in short periods of time which without doubt will result in a better and quicker adaptation to the evolution of the market and the behaviour of consumers will also be achieved with the possibility of including new products when its consumption starts to be significant.
On the other hand, the new system will be technically modern, as it will facilitate the immediate inclusion of improvements in the methodology that the different academic forums and national international institutions offer. In this sense, decisions from the Working Group for the harmonisation of the CPI in the European Union (EU) will be especially valued.
With this proposal a continuous updating process of the consumption structure, based on a continuous movement of information between the CPI and the CFBS as a fundamental source of information will be created.
The base period is that for which the arithmetic average of the monthly indices is made to equal 100. 2001 is the base period of the new system, this means that all the indices that are calculated refer to this year.
This is the period to which the weightings that serve as system structure are referred given that these are obtained from the CFBS, the reference period of the CPI is the period during which this survey is developed.
The actual system change has been carried out with the information coming from the CFBS that supplies the basic information on expenditure from families on consumer goods and services. Thus, the reference period of the new system is that included between the 2nd quarter of 1999 and the 1st quarter of 2001.
For the calculation of weightings more importance has been given to the information corresponding to the nearest quarters at the moment of update.
To obtain significant indicators for all functional and geographical breakdown levels for those that publish the CPI, the sample selection process has been structured in three main sections each one of which has the objective to select the different components of the same. These are the following:
For the selection of municipalities as in previous bases, certain population criteria have been used and the situation of the main commercial areas in each one of the provinces has been taken into account. The sample of municipalities has increased with respect to base 92, ranging from 130 to 141 (for food) and from 70 to 97 (for the rest).
On the other hand, special attention was paid to the different types of existing establishments as well as the collection of the prices of perished articles in non-capital municipalities. With all this, the number of prices processed with respect to the previous base increased, going to approximately 180.000 monthly prices.
This is the set of goods and services that households use for consumption; not considered therefore are expenses on investment goods nor selfconsumption, selfsupplies or imputed rents. In the CFBS goods and services have been classified according to the COICOP international consumption classification (usually in English, Classification Of Individual Consumption by Purpose). Thus, each consumption division of the CFBS must be represented by one or more articles in the CPI in such a way that the development of its prices represents that of all elements that integrate the said division.
This is the set of good and services selected in the CPI whose evolution of prices represents that of all those that make up the COICOP division to which they belong.
The process to determine the composition of the shopping basket and its structure of weightings uses the CFBS as a fundamental source of information; thus, by virtue of the importance of each division they have selected one or more articles for the CPI. The total number of articles that make up the new shopping basket is 484.
For each one of the articles its description or specification are elaborated with the objective of facilitating its identification on the part of the surveyee and permitting the correct collection of prices. These specifications bear in mind the own particularities of each region.
The CPI base 2001 adapts completely to the COICOP international consumption classification.
In this way, the CPI functional structure will consist of 12 groups, 37 subgroups, 80 classes and 117 classes. Moreover, the 57 existing headings are maintained and the number of special groups is broadened.
Up to now, all previous Spanish systems used what is known as a typical Laspeyres index with fixed base, just as with many other countries in the European Union. The main advantage of an index of this type of that it facilitates the comparability of a same structure of articles and weightings over the time that the system is in force; however, it has a disadvantage and that is that the weightings structure loses validity as time passes and consumer consumption guidelines develop.
The new formula will use the "Laspeyres linked", which consists of referring the current periods prices to those of the period immediately prior; in addition, the weightings of information from the CFBS will be updated at least every two years.
The use of weightings coming from the CFBS to calculate the indices avoids the selfweighting of CPI divisions by means of the level of the indices. In other words, the divisions will not gain weight in the shopping basket to the extent that its index gets greater magnitude.
On the other hand, the annual update of weightings has the following advantages:
Basically the process of calculation is the same as that of a Laspeyres: weighted averages of indices from the articles that make up each one of the functional groups for which indices are obtained are calculated and they are compared with those calculated the previous month. In this case the weightings used do not remain fixed for the whole period the system is in force.
, the expression of the general formula is the following:
is the index in month m of year t referring to the year t-1.
is the weighting of the component i referring to the year t-1.
is the index of component i in month m of the year t referring to the year t-1.
Another important novelty in the new system is the use of the geometrical average for the calculation of the average provincial prices of all the articles in the shopping basket which are involved in the elaboration of the monthly index.
Treatment of the changes in quality is one of the subjects that most affects any price index.
A quality change occurs when some of the characteristics of variety for which the price is collected change and it is considered that this change implies a change in the utility that this brings to the consumer.
For the correct measurement of the evolution of prices it is necessary to estimate to what extent the variation observed in the price is due to the change in the quality of the product and which part of this variation is attributable to the price, independently of its quality.
The methods most used in the CPI are the experts consultation, that consists of requesting information from own manufacturers or sellers to be able to estimate the quality change; the options prices, that analyses the component elements of the old and new product to establish the cost of the differences between both of them; and the overlapping price, based on supposing that the value of the difference in quality between the product that disappears and the new one is the price difference between them in the overlapping period, that is in the period that the price of both of them is in force.
The new system introduces a novelty in the adjustment methods which have been used up to now in the CPI and this is the use of hedonic regression to carry out quality adjustments in certain groups of products such as electrical appliances. This method is used as a complement to those mentioned previously.
During 2002 studies will continue that will facilitate determining the viability of applying this new method of adjusting the quality for other articles in the shopping basket, by virtue of the information available.
One of the most important changes that will occur in the CPI with the entry into force of the new system, base 2001, is the inclusion of sales prices.
The CPI, base 1992, did not contemplate the collection of these prices for which their inclusion in the new system will produce a rupture in the series of this indicator, that is not possible to solve totally with the method of legal links, used each time that a base change is carried out.
Nevertheless the INE will supply the corresponding data for the long term variation rates to avoid the lack of comparison due to the rupture of the series.
As in previous base changes the INE will publish the linked series as well as the link coefficients that facilitate its calculation in those cases in which is possible to give continuity to the series. In the cases in which there does not exist an exact equivalence this will be indicated appropriately.
The legal link coefficient is calculated as the coefficient between the index from the month of December 2001 in base 2001 and in base 92. It is by this coefficient that the indices in base 92 are multiplied and indices are obtained in base 2001.
Due to the availability of annual data on weightings coming from the Continuous Family Budgets Survey, one if the most important modifications in this new process of system change is the continuous update of weightings.
Once the new CPI system was established the process will have to parts:
A) Continuous adaptation of CPI.
It will consist of the annual review of the weightings for determined levels of geographic and functional break-down; in it the convenience, or lack thereof, of broadening the product coverage as well as the possibility of modifying some of the treatments employed in the index calculations will be studied each year.
B) Structural revision of CPI.
Every five years a complete base change is carried out; therefore, the operations to be undertaken will consist of determining the make-up of the shopping basket, the weightings for the most broken-down levels and the sample selection. This will also be accompanied by a much deeper review of all the methodology aspects which define the CPI.
In this way, a more dynamic indicator will be obtained which adapts more quickly to market movements and to the appearance of methodological innovations. Moreover, this will be fulfilled with the demands of the EU via Eurostat.
A framework of how to act which is totally different to the existing one is established now, in not dealing with a mere base change but rather a much broader process.