Formation of Weighting System in CPI Calculation: Household Survey Data and SNA Harmonization

1. The formation of a weighting system when calculating the CPI. The issues of household survey data and SNA harmonization Irina Goryacheva Minsk September 11-13, 2019

2. Theory and practice of weighting formation for calculating the CPI (1/4) The main source of information for building weights in calculating the CPI in most countries is the data on household consumption expenditures (HCE). The most important objectives of the survey: - obtaining information for the calculation of weights for the consumer price index; - meeting the needs of public authorities and the scientific community for timely and detailed information on expenditure by different types of households. The HCE is a sample survey of a specific set of households which representatives of statistical agencies request to register their expenses for various types of consumer goods and services during a certain period of time. 2

3. Theory and practice of weighting formation for calculating the CPI (2/4) The HCE is a costly procedure that can also be very burdensome for respondents who have to maintain detailed cost records. In order to reduce the burden on respondents in some countries, supermarkets or other retail outlets provide detailed printouts of purchases. However, the collection and processing of such information in most countries remains unavailable for a number of reasons. HCE is characterized by some systematic errors. Such errors can be corrected by amendments. In addition, it may be necessary to adjust the data collected during the HCE in order to bring them into line with the cost concept defined by the compilation of CPI. 3

4. Theory and practice of weighting formation for calculating the CPI (3/4) Since the prices of the base period in calculating the consumer price index for goods and services are the prices of December of the year preceding the reporting year, and the average annual structure of consumer spending is taken as weights, it is necessary to ensure comparability of these indicators. With this aim in designing the structure of consumer expenditures for the calculation of the CPI, it is necessary to implement a number of additional calculations using updating coefficients. The calculation of the updating coefficients can be based on data for the year preceding the year in which the developed weights will be used to calculate the CPI. 4

5. Theory and practice of weighting formation for calculating the CPI (4/4) If expenditures need to be disaggregated by region for sampling or analytical purposes, any regional information obtained through HCE can be supplemented by census data. Food surveys can be another source of data. These are special household food expenditure surveys that are conducted in some countries. Using them, you can get more detailed information about food costs than using HCE data. Another possible source of information is point-of-sale surveys, which are carried out in some countries. The point-of-sale survey is designed to provide information on retail outlets where households buy certain groups of goods and services. Households answer questions (for each product) about the amounts spent at each outlet, the names and addresses of these outlets. The main focus of using the point-of-sale surveys is to compile a selection of outlets for the collection of price information. 5

6. Harmonization of CPI calculations with households and SNA surveys (1/2) The structure of household consumption expenditures is determined by disaggregating the total expenditures on the final consumption of households as a part of GDP. Is it possible for a wider number of product groups on the basis of data on population expenditures for the purchase of goods and services according to the results of household surveys. Additional information is used to determine the specific weight of individual items in the consumer set: data on the structure of retail trade, the production of certain types of products, expert assessments, etc. The use of the commodity flow method through the resource tables and the use of the SNA makes it possible to reconcile and balance data from different sources. The commodity flow method can be used to improve the quality of estimates of household consumption expenditures. 6

7. Harmonization of CPI calculations with households and SNA surveys (2/2) In practice, the CPI can only cover a certain subset of households and a subset of expenditures covered by national accounts. In addition, the price index formulas used to calculate CPI and national accounts deflators may vary. These differences mean that, in principle, the overall CPI does not coincide with the deflator of total household consumption expenditure in the national accounts. On the other hand, input data on prices and expenditures collected and applied for the CPI are also widely used to construct price indices needed to deflate individual components of household consumption in the national accounts. It is important to note that national accounts should not be considered as an independent data source alternative to the HCE. In contrast, the HCEs are one of the main sources of data on household consumption expenditures used to compile national accounts. 7

8. Thank you for your attention! 8