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

1. Possible integration of the PPP sample into the Czech CPI basket: advantages and limitations Jiří Mrázek Czech Statistical Office Eurostat Conference „Reviewing the business architecture of consumer price statistics“ (Luxembourg, 15-16 October 2009)

2. 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)

3. 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

4. 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

5. Looking for common EU27 sample • Basis - 6 PPP surveys 2006-2008: • E06-1 Foods, drinks and tobacco • E06-2Personal appearance • E07-1 House and garden • E07-2Transport, restaurants and hotels • E08-1 Services • E08-2Furniture and health • Totally 2541 consumer items priced: • Of which 1382 in all 3 country groups (N, S, C) together

6. Survey E06-1 vs. all surveys combined

7. Survey E08-2 vs. all surveys combined

9. 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

10. Selection of common set of consumer items - structure • 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

11. „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

12. Basic set vs CPI sample – result of comparison • 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

14. 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

15. 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

16. Limits of integration - statistical • Table shows to which extent is the „Basic set“ representative for CPI basket • Small part of CPI basket covered, „international sub-basket” is notrepresentative for CPI

17. Limits of integration - statistical

18. 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)

19. 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

20. Thank you for your attention