Possible integration of the PPP sample into the Czech CPI basket: advantages and limitations

Jiří MrázekCzech Statistical Office

Eurostat Conference „Reviewing the business architecture of consumer price statistics“ (Luxembourg, 15-16 October 2009)

Motivation for integration of PPP and CPI/HICP

– Existing:• Saving resources for data collection

• Sharing data specific knowledge

• Higher comparability of PPP and HICP

– Arising:• Demand for internationally comparable set of Absolute

Consumer Prices (ACP)

Absolute Consumer Prices (ACP) - possible source

– PPP:• Ideal as starting sample• Collected every 3 years only

– CPI/HICP:• Reflect national consumer pattern, no regard to international

comparison (so far)• Strong human, financial and technical resources• Elaborated system of routine data collection and validation

=> This presentation deals with possibility of ACP based on routine CPI/HICP production

Content of this presentation

– Question: „How many internationally comparable items are already contained in the CPI basket and how many can be included?“ („Can future ACP sample be integrated into CPI?“)

– Answer (content of the presentation):• Finding common EU27 representative set of consumer items

from PPP survey („Basic set“ = approximation of ACP sample)

• Intersection with current Czech CPI basket

• Advantages of the integration

• Limitations of the integration

Looking for common EU27 sample

– Basis - 6 PPP surveys 2006-2008:• E06-1 Foods, drinks and tobacco

• E06-2 Personal appearance

• E07-1 House and garden

• E07-2 Transport, restaurants and hotels

• E08-1 Services

• E08-2 Furniture and health

– Totally 2541 consumer items priced:• Of which 1382 in all 3 country groups (N, S, C) together

Survey E06-1 vs. all surveys combined

Survey E08-2 vs. all surveys combined

What are the 46 items priced and marked with asterisk by all the 27 EU countries?

– Only 2 items with relatively high weight:• Diesel (normal)

• Petrol, 95 octane

– Other items with mostly low or negligible importance, e.g:• Fresh bananas,

• Chicken breast – fillets,

• Milk chocolate, plain, 30% cocoa content

• Shaving gel (Gillette),

• Battery (AA, 1.5V, multipack),

• Music CD (Pop, Top 5),

• Cappuccino, in bar/café, at the table,

• Driving school, 1 lesson

• Issuing passport

Selection of common set of consumer items - structure

COICOPNumber of items

Priced by CZE

Asterisk by CZE

Food, Beverages 132 131 109Alcohol Tobacco 20 20 19Clothing, Footwear 111 111 98Housing 20 20 20Household Furnishings 111 111 108Health 22 22 18Transport 47 47 40Communications 21 21 14Recreation, Culture 112 112 96Hotels, Restaurants 33 33 30Miscellaneous 47 47 45Total 676 675 597

– Out of the 676 items common in EU27 (priced at least by 25, given asterisk at least by 17) those marked by asterisk in CZE were selected (597 items) – „Basic set“

– Note: Education is missing

„Basic set“ vs Czech CPI sample - method

– Methodical differences:• PPP item description is narrow, small variance of prices is allowed

• CPI item (Elementary Aggregate - EA) description is looser; but often several more specific „varieties“ pre-defined within EA description

– Example of different description:• PPP: Long-grain rice, white, parboiled, cooking time: 15 - 20 min,

500 - 1000 g, not in cooking bags, well known brand, exclude UNCLE BEN'S

• CPI: Long-grain rice, white, not in cooking bags

» Specific variety: specific brand, specific size, parboiled (or not), specific outlet

– PPP set in CPI basket – method of comparison:• If given PPP item fits description of CPI Elementary Aggregate or

one of its varieties, PPP item is considered as included in CPI

• The match has not to be exact, it is sufficient if a new variety corresponding to PPP description can be introduced within some EA

Basic set vs CPI sample – result of comparison

COICOPNumber of items

Included in CPI

Share %Possibly

in CPIShare %

Food, Beverages 109 73 67 83 76

Alcohol, Tobacco 19 9 47 11 58

Clothing, Footwear 98 32 33 42 43

Housing 20 9 45 12 60

Household Furnishings 108 28 26 46 43

Health 18 3 17 5 28

Transport 40 14 35 23 58

Communications 14 10 71 13 93

Recreation, Culture 96 28 29 35 36

Hotels, Restaurants 30 8 27 11 37

Miscellaneous 45 15 33 19 42

Total 597 229 38 300 50

– About 229 items of the „Basic set“ is already included in CPI (or after small adjustment of the definition)– About 300 items could be theoreticaly included, if EAs suitably replaced without loosing representativity of

the CPI basket

COICOPNumber of

items (>=10)Included in

CPI - share %Possibly in

CPI - share %01.1.6 Fruit 12 92 9208.3 Telephone services 10 90 10001.1.1 Bread and cereals 14 79 8601.1.2 Meat 14 79 7901.2 Non-alcoholic beverages 13 69 7701.1.7 Vegetables 19 68 7401.1.8 Sugar, jam, chocolate … 11 64 7302.1 Alcoholic beverages 16 44 5605.2 Household textiles 10 40 50

Total 597 38 5009.5 Newpapers, books… 21 38 4805.3 Household appliances 24 38 5407.2 Transport: Operation 17 35 5912.1 Personal care 38 34 4203.1 Clothing 75 33 4503.2 Footwear 23 30 3505.5 House and garden…tools 14 29 4309.3 Other recreational items.. 30 27 3009.1 Audio-visual, photo… 37 24 3511.1 Restaurants, canteens 25 24 3605.6 Household maintence 23 22 3507.1 Purchase of vehicles 14 21 5001.1.9 Other food products 10 20 6004.3 Dwelling maintenance, repair 11 18 3606.1 Medical products 18 17 2805.4 Glassware, tableware… 12 17 4205.1 Furniture, floor coverings 25 16 36

Advantages of integration of PPP and CPI/HICP - statistical

– Higher consistency of the price index update of regular PPP survey results to next year

– Price index update of individual PPP seasonal items (namely Food)

– PPP space coefficient source

– Countries have a common set of absolute price data available monthly

– Common subset of HICP samples among EU27 countries:

• Better comparability of HICPs between countries

• Similar QA of HICPs

Advantages of integration - resources

– Possible source of substantial part of Absolute Consumer Prices (ACP) => lower burden on extra survey

– Potentially lower burden on PPP survey

Limits of integration - statistical

COICOP CPI weightWeight represented by PPP "Basic set"

Share %

Food, Beverages 162,6 53,9 33Alcohol, Tobacco 81,7 16,7 20Clothing, Footwear 52,4 13,7 26Housing 248,3 35,1 14Household Furnishings 58,1 8,0 14Health 17,9 0,4 2Transport 114,1 37,3 33Communications 38,7 15,8 41Recreation, Culture 98,7 11,6 12Education 6,2 0,0 0Hotels, Restaurants 58,4 9,9 17Miscellaneous 63,0 7,2 11Total 1000,0 209,6 21

– Table shows to which extent is the „Basic set“ representative for CPI basket

– Small part of CPI basket covered, „international sub-basket” is not representative for CPI

Limits of integration - statistical

COICOPCPI weight

(>15/000)Weight represented by PPP "Basic set"

Share %

07.2 Transport: Operation 59,2 33,1 5608.3 Telephone services 35,0 15,7 4504.4 Water, misc. dwelling services 19,4 8,5 4401.2 Non-alcoholic beverages 17,2 7,1 4101.1.2 Meat 39,6 12,0 3004.5 Electricity, Gas, Heat 89,9 26,4 2901.11 Bread and cereals 24,9 6,6 2703.1 Clothing 39,8 10,6 2712.1 Personal care 27,1 6,8 2502.1 Alcoholic beverages 40,2 9,2 23

Total 1000,0 209,6 2109.3 Other recreational items.. 21,8 4,4 2011.1 Restaurants, canteens 51,8 9,4 1802.2 Tobacco 41,5 7,4 1809.1 Audio-visual, photo… 17,2 2,6 1501.1.4 Milk, cheese and eggs 29,3 4,0 1407.3 Transport services 17,8 2,2 1209.4 Recreational and cultural serv. 23,3 2,4 1005.1 Furniture, floor coverings 21,4 1,5 707.1 Purchase of vehicles 37,0 2,0 509.6 Package holidays 21,9 0,0 004.1 Actual rentals 35,3 0,0 004.2 Owner-occupied housing 98,0 0,0 0

Limits of integration – organization, resources, methodology

– Common ACP set has to be coordinated by Eurostat like PPP

– Difficult to rebuilt CPI basket to integrate PPP/ACP set

– Difficult to match PPP description in CPI (collection systems)

– Difficult to update CPI survey based on central EU suggestions (for PPP it is more easier)

Recommendations

– ACP should be based on common PPP set

– ACP should be tightly coordinated with PPP survey

– ACP can be gradually integrated to some extent into CPI

– Future extensions of ACP should be limited

(„one in => one out“)

– Integration is possible, but do not expect too much

Thank you for your attention