CPI Compilation in Lesotho

1. CPI Compilation in Lesotho Kabeli ’Mefane

2. Contents • Background • Coverage, Classification and Weights • Data collection • Treatment of missing observations and Substitution • Data Processing • Computation method • Basics to the Assurance of the Data Quality • Conclusion

3. Background • The Price Statistics Section of the Lesotho Bureau of Statistics (BoS) compiles and publishes the consumer price index (CPI) • CPI is the official measure of inflation in Lesotho • The reference period for the index is April 1997. • The consumer price survey is carried out under the methodological guidance of the Statisticians • The CPI weighting is integrally based on the findings of the Household Budget Survey, which is also based on a national concept • HCPI is one of the good indicators for inter-country comparison

4. Coverage, Classification & Weights • The geographic scope of the CPI is urban, covering the eleven urban towns of Lesotho • The CPI basket of goods and services is derived from the results of the 1994/1995 Household Budget Survey (HBS) • The classification used is according to the 1993 system of national accounts (SNA 93), Classification of Individual Consumption by Purpose (COICOP) • The revision of the basket of goods is done after publication of the latest HBSresults.

5. Coverage, Classification & Weights conti.. • The latest Household Budget Survey (HBS) was conducted in 2002/03 and is not yet fully published. • The consumer price index is calculated on the basis of 4,540 prices collected from approximately 299 outlets throughout Lesotho • The CPI basket of goods and services contains about 220 basic price items • The items are divided into 12 main groups, 29 groups and 9 sub – groups.

6. Coverage, Classification & Weights conti.. • Main group Weight • Food & non-alcoholic beverages 39.8% • Alcoholic beverages & tobacco 6.4% • Clothing & footwear 15.6% • Housing, water, electricity, gas & other fuels 3.7% • Furnishings, h/h equipment & routine maintenance of house 17.0%

7. Coverage, Classification & Weights conti.. • Main group Weight 6. Health 1.4% 7. Transport 7.8% 8. Communication 0.1% 9. Leisure, entertainment & culture 1.2% 10. Education 3.2% 11. Hotels, cafes & restaurants 0.4% 12. Miscellaneous goods & services 3.2%

8. Data Collection • There are two Statisticians working on the CPI and ten supervisors as well as twenty-four price collectors in the whole country • BoS follows a sampling procedure which is referred to as ‘representative’. The representative items and the specific outlets are pre-selected. • Prices are collected by personal visits to the outlets by permanent staff of the Bureau of Statistics (BoS) • Market prices of all food and non-food items are collected at least one working week period at, the beginning of the calendar month to which the index pertains • Prices which are the same across the entire country are collected centrally

9. Treatment of missing observations and Substitution. • In the case of non-availability of some items, callbacks are done before any substitution can be made for those items that are permanently out of the market • If the disappearance from the sales outlet under observation is temporary, no price is recorded during the visit in question • The temporarily missing observation is imputed using the growth rate of the same item obtained from those outlets where the item is available • The replacement is done for the items, which have permanently disappeared from the market

10. Treatment of missing observations and Substitution. Conti.. • An item may be replaced by an equivalent product at the same sales outlet, failing this, a different product at the same sales outlet or another product deemed to be sufficiently similar at the same sales outlet • If there is no such an item to substitute with, the weights are reallocated among the existing items within that group • The disappearance of a sales outlet may be due to: a change of location, temporary or permanent shutdown of operations or change of business activity • Price Collectors immediately inform the supervisor about the closure of an outlet, who then decide what course of action to take. Which is normally to find a substitute.

11. Data Processing • Monthly checks against errors and mistakes in price information are carried out. • Extreme prices and price changes are checked very carefully. • Visual Dbase is used to capture data. • When all data have been entered into the database the consistency of the data are checked. • A price is identified for checking if the price of an item increases by more than 120% or decreased by less than 85%. • The price indices are then examined manually for unusual changes.

12. Computation Method • The formula used in calculating the price indices is modified Laspeyres index with basic price observations being processed through geometric mean: Price Relative, (P r) = (P t /P t-1 )* 100 Geometric mean = ((P t /P t-1 )* 100) 1/n Modified Laspeyres Index PL = (Pt i Q0i ) (Pt-1 i Q0i ) • The officially accepted method of measuring inflation rate in Lesotho is month on the same month during previous year comparison. {(Ic/Ip)-1}*100 = Inflation rate Where Ic = index for the current month, Ip = index for the same month in the previous year

13. Basics to Assurance of Data Quality • The price index should not reflect price difference that is due to increasing or decreasing quality between the missing item and its replacement. Quality adjustments are usually made at the time a replacement item variety is selected to be used in the index. • Any outlet that has disappear should be replaced by the one that conducts the same type of business. The original sampled items should be retained in the new outlet. • Statistical data editing methods like the Tukey Algorithm are to be used. • Training of both collectors and Compiler should be a regular exercise.

14. Basics to Assurance of Data Quality. Cont.. • a monthly check of the characteristics of the items. • track the existence of price observations. • monthly check of the sample of outlets. • update the maximum and minimum price borders according to price changes. • updating of pricing method for calculation in the index. • a regular examination of the overall suitability of the items in the sample. • Presenting a paper, each quarter, relating to one or more of the issues above • Statisticians in the section should undertake a project regarding important issues connected to the compilation of CPI e.g. updating of the CPI basket.

15. Recommendations and Conclusion • Because prices in shops can change and the CPI production timetable is very tight, editing needs to be done in a short period of time. • Editing procedures cannot only improve the quality of the price index but also result in operational efficiencies in the compilation of the CPI • BoS like many agencies in the developed countries should adopt the quality management system standard. • New software to better manage the capturing and analysis of data should be designed very soon.

16. Recommendations and Conclusion. Cont.. • Acquisition of hand-held computers for the price collection process should be supported and implemented in the developing Countries such that we should not be left behind in this evolving world of technology and internationally accepted standards. • One of the solutions to the problem of addressing quality impact lies in sharing practices and information relating to each case. • In the long run, we must invest in research and development in order to achieve the same level of quality as developed countries over time. • SADC should unseal its Harmonised Consumer Prices Index (HCPI) programme. • Lastly lessons learned from the ICP implementation and results should be applied in order to improve the compilation of CPI.

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