THE INDEX OF RETAIL PRICES

REVISION OF THE INDEX OF RETAIL PRICESINDEX OF RETAIL PRICES

The revision of the Index of Retail Prices is a process pthat is undertaken following the conduct of aHousehold Budget Survey (HBS), since the resultsof the HBS is used as the basis for the revision of theRPI to determine:1. The Income Group that will be targeted 2. The Items in the Basket of Goods

Th i hi h i b ll d3. The areas in which prices are to be collected4. The weight for each Item in the Index5 The weight for each Geographic Area surveyed5. The weight for each Geographic Area surveyed

THE REVISION OF THE INDEX OF RETAIL PRICES

With the completion of the 2008/2009 HBS,h I d f R il P i bthe current Index of Retail Prices can now be

revised. Such a revision entails the following gActivities:

SUMMARY OF ACTIVITIES FOR THE REVISION OF THE RPIREVISION OF THE RPI

1 Analyze data from the HBS on Consumption Expenditure at1. Analyze data from the HBS on Consumption Expenditure at the Item Level

2. Analyze data from the HBS on Consumption Expenditure at the Income Levelthe Income Level

3. Determine the Scope of the Index : Target Income Group4. Determine the Items to be included in the Basket of Goods5. Compute the Weight of each Item6. Determine the System of Classification7 Compute the Weight of each Section in the Index7. Compute the Weight of each Section in the Index8. Classify the Price Collection for each Item9. Determine the Geographical Scope of the Index

D i h N B P i d10. Determine the New Base Period

SUMMARY OF ACTIVITIES FOR THE REVISION OF THE RPI (Continued)( )

11. Determine the most appropriate Computation of the Index 12. Design a Computerized System for the computation of the g p y p

Index12. Develop a Sample Frame for the selection of Establishments14 Design Price Collection Sheets14. Design Price Collection Sheets15. Determine the Variety Descriptions for Price Collection Sheets 16. Develop separate Indices (National, Trinidad, Tobago)16. Develop a Manual17. Conduct Meetings with Stakeholders18. Develop and Implement a Training Programme18. Develop and Implement a Training Programme19. Collect and process data under the New Base Period

TIME PERIOD DEFINITIONSTIME PERIOD DEFINITIONS•Index base period: the period for which the index number is written as 100 in the series of indexnumber is written as 100 in the series of index numbers.

•Weight or expenditure base period(o): this is the•Weight or expenditure base period(o): this is the period to which the data used in the calculation of weights, refers. E.g. Household expenditureweights, refers. E.g. Household expenditure

•Price reference period (r): this is the period for which prices were initially collected All futurewhich prices were initially collected. All future prices collected are then compared to these prices in calculating the Index.g

The Index base period = Price Reference period is January 2003 = 100

The Weight or Expenditure base period is May g p p y1997/May 1998New Expenditure base period: 2008/2009p p

Trinidad & Tobago Port of Spain San Fernando

It (S b) S ti A AItem (Sub) Section Area Area

Weight Index Item Index Weight Index Weight Index

ALL ITEMS 1000.00 182.86 262.65 185.76 128.70 167.11

FOOD AND 180.00 418.13 27.25 641.59 17.27 399.99

NON-ALCOHOLIC BEVERAGES

FOOD 156.20 459.74 22.74 739.08 14.79 444.75

BREAD AND CEREALS (ND) 31 21 187 27 4 00 202 99 2 79 188 34BREAD AND CEREALS (ND) 31.21 187.27 4.00 202.99 2.79 188.34

Bread 202.76

White Bread 3.85 204.51 0.56 213.81 0.34 205.88

Whole Wheat Bread 0.54 197.09 0.16 205.61 0.02 178.19

Hops 1.12 199.47 0.12 200.00 0.18 200.00

Total 5.51 0.84 210.27 0.54 202.90

Prices recorded for the Index of Retail Prices i iare the actual prices paid by consumers and

therefore include indirect taxes such as VAT

Discounts are also taken into account provided they are available to all consumers and are not restricted to bulk purchases or represent a h i h li f h dchange in the quality of the goods.

The basket of goods and services are classified into different categories. The system of Classification g yused was the COICOP (Classification of Individual Consumption by Purpose).

These categories can be broadly given as follows:Di i i ( F d d N Al h li B )Division (e.g. Food and Non-Alcoholic Beverages)Group (e.g. Food)Sub Group (e g Bread)Sub-Group (e.g. Bread)Item (e.g. White Bread)Variety (e g Kiss Milk Slice 590g)Variety (e.g. Kiss Milk Slice 590g)

A price is recorded by a field officer for a particular variety of a given item on a pricing sheet. Pricing sheets are distributed to field officers on the first Tuesday of every month and field officers commence price collection on the following day.

P i f h I ll ll d f h (3)Prices for each Item are generally collected from three (3) Retailers. For example, prices for all Items on a Food Sheet in a particular area would be collected from three Retailers in that area As such in the case of a Retailer closing down everyarea. As such, in the case of a Retailer closing down, every attempt should be made to locate an alternative Retailer.

Two weeks later, the sheets are returned to the office, whereTwo weeks later, the sheets are returned to the office, where they are edited and entered onto an electronic worksheet for calculation. This is presently done in Excel, but will soon be moved to a Database system to allow for the ease of retrieval of d tdata.

POINTS TO NOTE IN PRICE COLLECTIONPOINTS TO NOTE IN PRICE COLLECTION

1. Proper detailed description of Items are required. For example, units of an item (150 g or 110 ml); mustard –in plastic dispenser or glass bottle; beers – hot or cold and whether or not a deposit for the bottle is included in the price; clothing items as detailed description asthe price; clothing items – as detailed description as possible.

2 Q li Fi ld Offi h h l i2. Quality - Field Officers must ensure that when selecting a substitute item, this substitute is as close in quality to the item being replaced As such once an Item is out ofthe item being replaced. As such, once an Item is out of stock in 2 consecutive time periods, a substitute item should be selected.

As recommended internationally, the Laspeyres method is used for the calculation of the Index.

For each item the following is calculated (May 2010 Index):For each item the following is calculated (May 2010 Index):

Weight of Item x Average Price (April 2010) x Average Price (May 2010)g g ( p ) g ( y )Average Price (Jan 2003) Average Price (April 2010)

= Weight of Item x Average Price (May 2010)Average Price (Jan 2003)

This result is added for all items, and this total is then divided by the total sum of weights to get a ‘weighted average’ of price changes, that is, the Index.

This calculation is carried out for the various sections of the Index (e.g. Food and Non-Alcoholic Beverages where the total sum of weights is 180) and for ‘All Items” in the Index ( f i h 1000)(sum of weights = 1000)

To calculate the Inflation Rate for May 2010(CSO’s Methodology – Average/Average)

= All Items Index Average for Jan – May 2010 x 100All Items Index Average for Jan – May 2009

= 166 4 x 100 = 6 1%= 166.4 x 100 = 6.1%156.9

To calculate the Inflation Rate for May 2010(Central Bank’s Methodology – Year on Year)

A 2010 100= All Items Index May 2010 x 100All Items Index May 2009

= 172 9 x 100 = 9 6% 172.9 x 100 9.6%157.8

Core Inflation refers to the Inflation rate after eliminating the effects of the

most volatile sections of the Index.

Core Index for May 2010 = (All Items Index x 1000) – (Food Index x 180)

1000 1801000 - 180

Core Index for May 2009 = (All It I d 1000) (F d I d 180)(All Items Index x 1000) – (Food Index x 180)

1000 - 180

Core Inflation for May 2010 =Core Inflation for May 2010 =

Core Index May 2010Core Index May 2009Core Index May 2009

Inflation is a problem when it causes ourInflation is a problem when it causes our purchasing power to fall. That is, if we need to spend more money to purchase the same p y pbasket of goods and services over time, then inflation is adversely affecting the citizens of y gTrinidad and Tobago.

Effect of Inflation RateIf however our incomes (wages and salaries) have more or less kept pace with inflation over a period of time so that our purchasing power remains fairly stable, then inflation has very little direct impact on citizens except for thedirect impact on citizens except for the inconvenience of handling more cash.

However even if incomes have kept pace with inflation, high inflation indicates instability in the

i d f i t d t ll hminds of investors and may eventually have a negative impact on the economy and therefore your wages and salariesy g