Patrick Kelly The new CPI: Sources, methods and results
Contents Understanding the CPI Key changes to the CPI in 2009 Results Looking forward
Objectives of the CPI CPI is a measure of average price changes for consumer goods and services Measure of inflation in the economy Macroeconomic analysis Monetary policy Cost of living Wage negotiations Adjustments to pensions, grants, maintenance, etc Adjustments to contracts
Key elements of the CPI Weights Relative importance of different products based on household expenditure Updated weights in 2009 5 yearly Source: Income and Expenditure survey and other data Prices CPI compiled by comparing price specific product over two consecutive periods Prices collected monthly, quarterly or annually Approx 80 000 prices are collected each month Indices Laysperes types index (weights fixed)
CPI methodological rules International Labour Organisation CPI manual and handbook Annual meetings of CPI experts
Source data for basket and weights Data collection in Income and Expenditure Survey 2005/06 24 000 households 12 month survey period Diary and recall questionnaire 6 visits to each household Extensive evaluation of results Post enumeration surveys Validation with other data sources Adjustments to data for CPI weights
Coverage of the CPI PROVINCE WEIGHT PRIMARY AREAS SECONDARY AREAS WC 18.3 CAPE TOWN Paarl, Worcester*, George* EC 9.9 PORT ELIZABETH Queenstown, Mthata* EAST LONDON NC 1.7 KIMBERLEY Kuruman, De Aar* FS 6.5 BLOEMFONTEIN Kroonstad, Sasolburg*, FREE STATE GOLDFIELD Bethlehem* KZN 14.1 DURBAN/PINETOWN Newcastle, Empangeni*, PIETERMARITZBURG Richard s Bay* NW 5.8 KLERKSDORP Mmabatho, Brits*, RUSTENBURG Lichtenburg* GP 32.8 CITY OF JOHANNESBURG Vereeniging, Vanderbijl, EKURHULENI METRO Krugersdorp* CITY OF TSHWANE MP 5.5 NELSPRUIT/WITBANK Ermelo, Middleburg*, LP 5.4 POLOKWANE Tzaneen, Phalaborwa* *services only
Whose inflation rate is it? CPI has always published for different expenditure groups Expenditure quintiles in CPI: Quintile Expenditure in March 2006 In today s money Weight Inflation June 2010 1 Up to R 14 654 Up to R 19 803 1,78 2,7% 2 R 23 278 R 31 652 3,88 2,9% 3 R 36 755 R 49 978 7,17 3,0% 4 R 79 152 R 107 627 15,61 3,8% 5 From R 79 152 From R 107 628 71,56 4,6%
Coverage of the CPI CPI weights are based on expenditure on products and services not income - not number of items Exclusions Taxes (Vat incl) In-kind expenditure Investments e.g retirement funding, life insurance Illegal expenditure Expenditure outside the country
Coverage of the CPI CPI is organised according to the COICOP classification 401 different products and services are priced nationally Provincial baskets Product group Weight Food and non-alcoholic beverages 15.68 Alcoholic beverages and tobacco 5.58 Clothing and footwear 4.11 Housing and utilities 22.56 Household contents and services 5.86 Health 1.47 Transport 18.8 Communication 3.22 Recreation and culture 4.19 Education 2.19 Restaurants and hotels 2.78 Miscellaneous goods and services 13.56
CPI basket Some new products: Minibus taxi trips Restaurant and take away meals Hotel accommodation Funeral costs Tickets to sporting events CDs and DVDs Some old basket products that are now excluded: Caravans and boats Musical instruments Laundry services VHS recorders and cassettes Mozerella cheese; Olive oil; butter
Price collection methods Items in retails stores and housing rentals National team of +100 price collectors Wide coverage of formal sector stores Monthly collection of prices of set sample of items per store Verification of all price changes Comprehensive quality controls including audits Data capture and editing in Head office Services and selected goods (e.g. used motor vehicles, hotels, chain restaurants, pharmaceuticals) Team in Head office Collect using admin records, websites, telephonic surveys
Different indices published Headline CPI (for urban areas): Single official measure of inflation Most comprehensive measure Replaced CPIX as inflation target measure Extensive set of analytical indices No official measure of core inflation various combinations
Key methodological improvements from 2009 New weights and base year New method for owner-occupied housing Owners equivalent rent (OER) vs Interest rates New methods for many smaller items Medical, education, books New classification (COICOP) New method of transition from 2000 series to 2008 series Introduction of parallel price survey Methods and sources manual
Measuring owner-occupied housing Weight of owner-occupied housing 12.2% Previously used changes in prime interest rate Not reflective of anything except cost of debt Why is owner-occupied housing a special case? asset accommodation service What is the payment/price? Bond (capital v Interest) Fully paid off Inherited
Measuring owner-occupied housing Three internationally acceptable methods available Adopted Rental equivalence = owners equivalent rent Values the services yielded by the dwelling by corresponding rental value for same type of dwelling Equivalent to an opportunity cost of not renting out your house Measured by survey of rentals of houses, town houses and flats - quarterly This survey also provides data for actual rentals
Results
Headline inflation and components Annual percentage change 14 % change 12 10 8 6 4 2 0-2 -4 Jan Mar May Jul Sep Nov Jan Mar May 2009 2010 Year month CPI Headline Services Durable goods Semi-durable goods Non-durable goods
Headline inflation and key products Annual percentage change 40 % change 30 20 10 0-10 -20-30 Jan Mar May Jul Sep Nov Jan Mar May 2009 2010 Year and month CPI Headline Food and non-alcoholic beverages Alcoholic beverages and tobacco Housing and utilities Purchase of motor vehicles Petrol Insurance
Key factors currently affecting inflation Strong/stable currency (imported goods) Low international prices for commodities (oil, food) Good harvests this summer (grain surplus) Indebtedness of consumers, weak demand
In conclusion Other uses of CPI Average prices Rural/urban analysis; Eastern Cape Treasury initiative International Comparisons Project Looking forward Next Income and Expenditure Survey: Sept 2010 Aug 2011 Implementation of reweighting and rebasing: 2014 No major changes planned Quality adjustments
Rental survey Thank you