Presentation on Consumer Price Index (CPI)

1. Presentation on Consumer Price Index (CPI) Department of Statistics Department of Economic Planning and Development Prime Minister’s Office

2. Outlines Introduction Compilation of CPI Dissemination of CPI Uses and Users of CPI

3. Introduction Consumer Price Index is produced by: Consumer Price Statistics Section (CPSS) Department of Statistics (DOS) Department of Economic Planning and Development (JPKE) Prime Minister’s Office CPI is produced monthly & annually

4. What is Consumer Price Index? • The CPI measures: • the changes in the price • of a fixed ‘basket’ of goods and services • purchased by the majority of thehouseholds

5. Definition and Concepts • The CPI measures price changes from a designated reference period known as base year period.The base year period of current CPI is 2002 (2002=100). • The price of CPI basket in the base year period is expressed as an index by assigning it a value of 100.0. The prices in other periods are expressed as percentages of the prices in the base period • for e.g. if the price of basket has increased by 25 % since the base year, then the index would be 125.0. Similarly, if the price has fallen by 5 % since the base year, the index would stand at 95.0 • Index is used because CPI covers a number of diverse items. To calculate and interpret the average price of many different type of items is complicated. CPI presented in index number form.

6. What’s in the CPI Basket? • CPI basket of goods and services only contains important items commonly purchased by the majority of the households in the country • CPI only contains items purchased for personal consumption not for business or investment purposes (for e.g., machinery & heavy equipment) • The selection of items to be priced for the CPI was based on the results of Household Expenditure Survey (HES) • The current CPI 2002=100 is based on the results of HES conducted in 1997/1998

7. Classification • CPI goods and services are classified into 10 Major Groups: 1. Food & non-alcoholic beverages 2. Clothing & footwear 3. Housing, water, electricity & maintenance 4. Household goods, services & operation 5. Transport 6. Communication 7. Education 8. Medical & health 9. Recreation & entertainment 10. Miscellaneous goods & services

8. 1. Food & non-alcoholic beverages(rice, cereals, meat, seafood, dairy products, oils, vegetable, fruits etc)2. Clothing & footwear(ready made clothes, clothing materials, tailoring chargers, shoes)3. Housing, water, electricity & maintenance (rental of house, fuel, water &electricity charges)4. Household goods, services & operation(furniture, carpets, audio & video equipment, kitchen appliances)5. Transport (purchase of new vehicle, spare parts, bus fare, air fare) 6. Communication (mobile phone, telephone charges, postal charges) 7. Education (school fees, stationery, newspaper, magazines, computer) 8. Medical & health(medical treatment, dental treatment, medicines)9. Recreation & entertainment(sport equipment, toys & games, camera, membership fees)10. Miscellaneous goods & services (cigarettes, domestic services, personal care items)

9. Weights • Weights are assigned to CPI goods and services • Weights indicates the importance of the goods and services. Some items are important than others • Prices changes for more important items should have a greater influence on the CPI than less important items • For e.g. Price changes in food items or transport items should have a big impact on the CPI than price changes in clothing and footwear because household spend more on food and transport items • The current weights for CPI 2002=100 are based on the results of HES conducted in 1997/1998

10. Distribution of Weights GroupsWeights 1. Food & non-alcoholic beverages 2,877 2. Clothing & footwear 561 3. Housing, water, electricity & maintenance 884 4. Household goods, services & operation 860 5. Transport 2,251 6. Communication 548 7. Education 471 8. Medical & health 98 9. Recreation & entertainment 814 10. Miscellaneous goods & services 636   • Total 10,000

11. Distribution of Weights

12. Compilation of CPI (CPI 2002=100)

13. Price Collection Method • What to price? • All items listed in the CPI basket of good and services • Number of items: 557 items (247 food + 310 non-food) • Prices collected are transaction prices (price actually paid) • Regular, sales, promotion, offers, discounts prices recorded • What is the number of observations? • Number of price observations: 5, 428 prices • More prices for items with a large weights (e.g. food items) • Less prices for items with similar price movements (e.g. newspaper, magazine, cigarettes)

14. Price Collection Method • How to price? • Price collection is done through personal visits or telephone • For items whose price fluctuate frequently (e.g. fresh fruits, vegetables and fish), prices are collected 2 times a week • For items with a fairly stable price (e.g. clothing, furniture, motor vehicles, airfares, tailoring, haircut), prices are collected monthly • For items with a very stable rate (water, electricity, school fees) prices are collected once a year or as and when the charges change • Price collection is done consistently on the same day of the week each month from the same outlet • The same item is priced every month so that ‘pure’ price changes are recorded and not quantity and quality price changes

15. Price Collection Method • Where to price? • Prices collected from large and well-established outlets reasonably popular located in densely populated areas • Collected from many different types of outlets • Collected from all the four districts ZonesNo. • Brunei Muara : 383 • Tutong : 66 • Belait : 102 • Temburong : 3 • Total outlets : 554 • When to price? • Conducted from 1st until 3rd week of each month

16. Computation of CPI • Price data collected are checked and validated. Data entered into excel and transfer to SPSS software for the computation of CPI • CPI is calculated using the Laspeyres’ formula In = ∑ PnQo x 100 ∑ PoQo Where : Pn - Current Price Po - Base Price Qo - Base Quantity

17. Computation of CPI Item Base Base Current Current Index Price Index Price Index Change B$ B$ (%) Ticket 5.00 100.0 5.25 ? ? Current Price x 100 = _____ Base Price $ 5.25 x 100 = 105.0 (5%) $ 5.00 The price of ticket has increased by 5 % with an index of 105.0 since the base year

18. Monthly CPI (Dec 2006)

19. CPI 2006 (Jan – Dec)

20. CPI 2007 (Jan - Jun)

21. Yearly CPI (2003 - 2006)

22. Inflation rate (2003 - 2006)

23. Computation of Inflation rate • Rate of Inflation: the percentage change in CPI from the preceding month • For e.g. inflation rate for 2006 CPI 2006 – CPI 2005 x 100 = _____ CPI 2005 102.5 – 102.3 x 100 = 0.2 % 102.5

24. Dissemination of CPI

25. CPI Dissemination • CPI is published on monthly and yearly basis • Monthly CPI is produced within 21 working days after the reference month (for e.g. CPI for July released on 21 August 2007) • Press release in Borneo Bulletin, Media Permata, Brunei Times, Pelita Brunei, Radio & TV • Brunei Economic Bulletin (quarterly report) • Key CPI figures are published in the JPKE website (www.depd.gov.bn)

26. Press releases in local newspaper

27. Press releases in local newspaper

28. Uses and Users of CPI

29. Uses of CPI • Macroeconomic indicator • used to monitor levels and causes of inflation • Maintaining dollar values • fixed payment (wages & social welfare benefits) can be reduced over time when prices rise • used to adjust payments to counter the effects of inflation • International Comparison • used to compare the inflation rate with other countries Users of CPIGovernment agencies, private agencies, private companies, researchers, students, general public etc

30. Problems & Solutions • Missing items • Carry forward the last observed price for 3 months • Replaces with a new item that is comparable or of similar quality in case the item still unavailable • Closed shop due to renovation, move in to new areas, bankruptcy etc • Replace with the new outlets within the same zone

31. THANK YOU