IMF Summer School Course on Consumer Price Index (CPI)

Introduction

• Overview of the importance of Consumer Price Index (CPI)
• CPIs are key economic and social indicators produced by national statistical organizations.
• Uses of CPIs:
  • Macroeconomic measure of inflation
  • Indexation of wages, salaries, and government payments
  • Tool for monetary policy
  • Metric for monitoring price stability

Course Overview

• Topics covered in the online course:
  • Important uses of CPIs
  • Concepts and definitions related to CPIs
  • Key issues in compiling CPIs
  • Formulas for calculating CPI
  • Recommended elementary and upper-level calculation formulas
  • Levels of CPI sampling and sample selection methods
  • Treatment of missing prices
  • Updating CPI weights and linking old and new indexes

Importance of CPI Quality and Accuracy

• Critical for:
  • National statistical organizations (NSOs)
  • International comparability

Uses of CPI

• Different uses necessitate distinct CPIs:
  • Macroeconomic measures, monetary/economic policy inputs, indexation of salaries and wages, poverty analysis, etc.
• Practical limitations in compiling multiple CPIs:
  • Resource constraints (staff/budget)
  • Potential user confusion with multiple indices
  • Importance of clear definitions and explanations for alternative CPIs

Aggregation Structure of CPI

• Classification of consumer expenditure (e.g., COICOP)
  • Divisions (e.g., food and beverages)
  • Groups and classes (e.g., cereals)
  • Subclasses and microclasses (e.g., basmati rice)
• Representative products selected for price collection from each elementary aggregate.

Index Types: Low Index vs. Young Index

• Low Index:
  • Fixed basket index where weights are updated to the same reference period as prices.
• Young Index:
  • Fixed weight index with weights based on the expenditure survey period.
  • Assumes quantities vary with price changes.
• Implications of each index type on estimates of inflation and bias.

Sampling Techniques for CPI

• Systematic Random Sampling:
  • Conducted independently within predefined strata (geography, outlet type, item).
• Example of refrigerator sampling stratified by region and outlet type.
• Goal: Minimize sampling error by ensuring low variance within strata.

Item Specification and Price Collection

• Items defined by characteristics affecting price (e.g., brand, size, type).
• Price Determining Characteristics:
  • Critical for price changes (e.g., brand, size).
• Matched models method for price changes, challenges with temporarily unavailable prices.
• Treatment of missing prices:
  • Temporary vs Permanent missing prices
  • Imputation methods for price changes
  • Replacement strategies for permanently unavailable varieties.

Role of Price Collectors

• Critical in identifying missing prices and determining their status (temporary or permanent).
• Responsibilities include:
  • Recording details of missing prices
  • Specifying replacement varieties when necessary
  • Ensuring compliance with specifications during price collection.

Conclusion

• Effective CPI compilation requires balancing multiple needs and practical constraints.
• Emphasis on the importance of clear definitions, systematic approaches, and the role of statistical practices in ensuring quality and accuracy.