REPUBLIC OF THE MARSHALL ISLANDS CONSUMER PRICE INDEX Ecoomic Policy, Plaig ad Statistics Office Office of the Presidet August 2004 3 rd Quarter Majuro, RMI
CPI Costructio ad Methodology Survey Overview: Over a 2-moth period from April to May 2002, the Office of Plaig ad Statistics, which was reamed the Ecoomic Policy, Plaig ad Statistics Office (EPPSO), of the Republic of the Marshall Islads (RMI), coducted a Household Icome ad Expediture Survey (HIES) from April 1 util mid-may. The staff selected four sample areas of Majuro, Ebeye, Jaluit ad Likiep. The selectio of these sample areas was judgmetal ad was based o choosig the largest populatio ceters (Majuro ad Ebeye) ad the two other areas that were logistically feasible to reach i coductig the survey ad were i the middle of the islads that were raked by populatio. This survey used two types of survey methods to gather data. For the more expesive ad less frequetly purchased items, such as major appliaces, electroic goods, ew ad used vehicles, etc., a pre-prited, survey questioaire was completed by a iterviewer. For those items which are more frequetly purchased, such as food, tobacco, driks, etc., the household respodet was give a diary to record all purchases durig a oe-week period. Household Sample: A total sample size of 700 i all four areas was used for the questioaire portio of the survey. Remarkably, a total of 657 households agreed to participate. For ay coutry gettig such a high participatio rate is a eviable achievemet. For the diary portio of the survey, 355 households participated. Selectio of the Item Sample: I the summer of 2002, staff members of the U.S. Bureau of the Cesus Iteratioal Program s Ceter processed the RMI s HIES data. These items ad expeditures were arrayed usig the U.S. Bureau of Labor Statistics CPI classificatio system as a frame of referece. The, usig a statistical techique called Probability Proportioate to Size, a ew item sample was selected. Usig the PPS techique to select the item sample esured that those items with the highest mothly household expeditures were selected i the sample. The sample icluded a total of 61 items compared i the revised CPI. Expadig the Major Groups: Usig the BLS Classificatio System as a frame of referece allowed the EPPSO to expad the umber of groups icluded i the RMI s CPI. Istead of havig four major groups, the revised CPI ow has 9 major groups. Havig more groups allows the users to uderstad better which groups are resposible for the icreases/decreases of the CPI. I the previous CPI, for example, alcoholic beverages were a part of the Food Group. Now,
it is oe of the 5 ew groups. The others are: Housig, Utilities ad Appliaces, Medical Care, Educatio ad Commuicatio ad Other Goods ad Services. Expasio of the Outlet Sample: The previous CPI collected price data from 4 differet outlets. I the revised CPI, the umber of retail outlets has bee expaded by more tha te-fold ad the outlet sample ow cosists of 46 differet retail outlets. These are more diversified ad geographically dispersed throughout Majuro. This substatially larger outlet sample esures that the EPPSO collects retail price data from a wide variety of outlets. Data Collectio ad Price Review Maual: The EPPSO has made aother ehacemet to the CPI by icreasig the data collectio traiig ad by formalizig this vital aspect of price collectio by developig a Data Collectio Maual. This ew maual covers virtually all aspects of price collectio ragig from iitiatig the retail outlet to the rules for selectig a retail item ad repricig. This ew maual will improve data collectio quality because it will provide guidace to the data collectors i hadlig almost ay type of re-pricig situatio. Likig the Old ad New CPIs: I the 1 st Quarter of 2003, data collectors collected price data for both the old ad revised CPIs ad the two idexes were spliced together at that poit. I order for two idexes to be liked together, there must be at least oe period where prices are collected for both the old ad the ew idexes. Begiig i the 2 d Quarter 2003, the EPPSO collected price data for oly the items i the revised CPI. From the 4 th Quarter 2002 to the 1 st Quarter 2003, the price chage was based o the previous CPI; from the 1 st to the 2 d Quarters 2003, the price movemet reflected the chage i prices for revised CPI. Chagig the Base Period: Aother chage i the CPI was rebasig it from 1882 = 100 to the 1 st Quarter 2003 = 100. This is a mathematical chage i the CPI but the more recet base period will make the CPI easier for users to uderstad. There is virtually o differece i the percet chages from the old CPI from oe period to aother ad the same idexes o the base period. Calculatig the Cosumer Price Idex As with most CPIs aroud the world, the EPPSO will cotiue to use the Laspeyres method to calculate the CPI. This is the most widely-used ad iteratioally-accepted method of calculatig price chage for a CPI. The Laspeyres formula is show below:
Laspeyres Formula: I = ( piq0 / p0q0) x 100 where, i=1 i=1 I = Price Idex i period p1q0 = the costs of a market basket of goods ad services i period i = 1 p0q0 = the costs of a market basket of goods ad services i the base period i = 1 p = price of the good or service q = quatity of the good or service i = idex for the good or service (where i goes from 1,,) This method of idex computatio uses the quatities of commodities purchased i the base period as the basis for computig the value of the market basket. First, there are umber of items i the market basket with each havig a base quatity. Each of these items has a base price, p0 ad curret price, pi. Multiplyig p0 with q0 gives the total expediture for a particular commodity for the base period. Curret expediture for a item is obtaied by multiplyig pi with q0. The sum of curret expeditures for all items i the market basket is expressed as piq0, while the sum p0q0 is the total market basket expeditures i the base period. Notice that i both summatios the term q0 remais costat, which meas by usig the same quatities oly price chages are reflected i two pricig periods. For those ufamiliar with statistical otatio, tryig to read ad uderstad the above explaatio ca be a itimidatig experiece. I layma s terms, the above simply meas that all of the 61 items i the CPI are priced every pricig quarter ad the prices for each item i the curret quarter are compared to the same prices i the base period. The base period is the 1 st quarter 2003 whe the CPI was set equal to 100. That is whe the CPIs for each of the 9 major groups ad the All Items = 100.
I actuality, the EPPSO uses a slight variatio to this formula. Each moth, the sums of the prices that are collected for each item are compared to the sums of the same prices i the previous quarter ot the base period. The sum of the prices of a item i the curret quarter is divided by the sum of the prices i the previous quarter to calculate a price relative. This price relative is multiplied by the item s weight i the previous quarter to update the item s weight i the curret quarter. This product is the divided by the item s weight i the base period to calculate a item s CPI. By summig the updated weights for all of the items i a group ad dividig that sum by the same weights i the base period will calculate the group s curret CPI. Relative Importaces of CPI Groups Percetages 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Series1 Food Alcoholic Bev. Housig Apparel Trasportatio Medical Care Recreatio Educatio/Commuic. Other Goods/Services CPI 3 rd Quarter 2004 Durig the 3 rd Quarter of the 2004 reportig period the Majuro CPI rose by 0.96% over the last quarter ad over the last four quarters (from August 2003) the CPI has icreased by a total of 1.47%. The Food group category resulted i a overall decrease of ( 0.81%) from the previous quarter. This is due to the reductio i food item prices, i particular chicke breasts ad all other parts, eggs, coffee (istat) ad drik mix (KoolAid, Luau mix, etc). Chicke breasts ad all other parts decreased from $2.22 to $1.86, eggs dropped from $2.25 to $2.11, coffee lesseed from $4.70 to $4.57, ad drik mix decreased from $3.86 to $3.62. O the other had, there was a slight icrease of 0.02% i the CPI i the Food group over the last four quarters. The Housig, Utilities ad Major Appliaces group category rose by 0.93%. Of all the goods ad services listed i this category, the oe that stads out i particular is the icrease i ret from $812.50 to $837.50. The Recreatio Group category resulted i a decrease of (-4.15%). This results from the decrease i the price of a Televisio set from $345.36 to $291.58.
I the Educatio ad Commuicatio Group, the Group Idex icreased by 11.08%, attributig to this is the rise i tuitio from $83.61 to $94.86. Durig the first quarter prices the followig groups also had slight icreases i prices; Housig/Utilities/Major Appliaces, Trasportatio ad Other Goods ad Services. There was a slight decease i the Apparel Group. There were o chages i the Alcoholic Beverages ad Medical Care Groups. The graph below illustrates the icrease i the CPI over the last four quarters. Cosumer Price Idex 104 103.5 103 102.5 102 101.5 101 03Quarter4 04Quarter1 04Quarter2 04Quarter3