CSO publication, , 11am
In order to construct a perfectly accurate CPI, one would need to know and record the price of every variety of every good or service available in every retail outlet in the State. This is not feasible in practice, so it is necessary to sample prices. There are four levels of sampling for local price collection: locations, retail outlets within location, items within retail outlets and product varieties.
To ensure the State is fully represented, the country is divided into 8 Nomenclature of Territorial Units for Statistics 3 (NUTS 3) regions. The regions are combined into 5 areas: Dublin; South-West; Border, Midland and West; Mid-West and Mid-East and South-East regions.
Purposive (or judgmental) sampling is then applied, whereby Dublin and the regional cities (Cork, Limerick, Waterford and Galway) are automatically included in the sample while a sample of towns (locations) are selected from the remaining strata with the constraining factor that each county in the State must be represented. As of December 2023, there are approximately 30 cities and towns in the CPI sample of locations.
A purposive sampling approach is also applied to select the sample of retail outlets within a location (i.e. retail outlets are chosen which are the most popular). As the CPI is intended to reflect only price change, the sample of retail outlets remains the same for as long as possible during the life span of the series. This ensures that extraneous factors unconnected with price change, which would otherwise affect the index calculations, are strictly controlled. However, when appropriate, new retail outlets or locations may be added. The number of retail outlets in the CPI sample, as of December 2023, is in excess of 1,000.
This in person price collection is supplemented by in office online pricing and transaction or scanner data files directly from retailers.
It would be both impractical and unnecessary to measure the price change of every variety of every item bought by every household in compiling the CPI. It is necessary to select a sample of specific goods and services that give a reliable measure of price movements for a broad range of similar items. For example, price changes for an electric drill might be considered representative of price changes for other electronic tools. The selection of these representative items in the CPI is purposive.
There are two main inputs into the selection of the sample of goods and services used for the CPI. The first source is the HBS, which gives a detailed breakdown of household spending. This information is supplemented by a large-scale research process. This ranges from contact with retailers, to use of market research and trade magazines. The CSO also collects information through price collectors on actual developments in retail outlets. The CSO uses this full range of information to ensure the basket of goods and services is representative of consumer spending behaviour.
As of December 2023, the CPI basket contains 612 individual goods and services (also known as item headings), which are organised according to the COICOP classification (see Appendix 3). The number of items chosen to represent price changes within each of the twelve COICOP divisions depends both on the weight of the division and the variability of price changes between the various items that could be chosen to represent that division (reflecting, for example, the diversity of products available). Intuitively, it makes sense to select more items in a division where spending is high as this helps to minimise volatility in estimates of price changes for high-weighted divisions and therefore in the CPI overall. If price movements for all possible items in a given division are very similar, it is sufficient to collect prices for only a few items.
By contrast, if price movements within a division are very different, a much larger selection of representative items will be needed to get a reliable estimate of price change for the division as a whole. This explains why a very varied group such as food has a large number of items, whereas a relatively homogenous group such as tobacco contains only 5 items.
Representative items are chosen centrally for the whole of the State. Actual price observations are collected each month in the various pricing locations as well as online and from the scanner data files received directly from retailers. Consistent with the principle of a fixed basket, the weight of the 612 goods and services are held fixed over the index reference period while the sample of individual price observations collected may vary.
The detailed contents of the CPI basket, and the ongoing changes to the sample, should not be accorded significance beyond their purpose as representative items. Indeed, within each product grouping, there is usually a point at which the number, choice of items and the precise weights attached to them become a matter of judgement. At this detailed level, it is unlikely that such choices have any significant impact on the CPI overall. For example, a selection of specific household appliances has been chosen to represent spending on small electrical goods, including irons, kettles and food processors. However, other selections would clearly be possible and equally valid.
Examples of typical item descriptions are given below:
For most goods, the selection of products and varieties within retail outlets is purposive. In each retail outlet, the price collectors choose one representative variety from all products matching the specification of each item heading to be priced in that retail outlet. To facilitate this, price collectors can seek assistance from staff in the retail outlet. As it is vital that the same product is priced each month, price collectors must record enough detail about the product, such as size, make and model, to ensure that it is uniquely identified. In practice, a wide variety of brands and products are sampled for each item heading across the different pricing locations. This gives a better representation of the price movements of the item heading in question, than would be realised if a single narrowly defined identical variety was priced in all locations.
In order that the CPI remains representative of consumer spending patterns over time, the selection of specific varieties for which prices are collected in specific locations is reviewed on an ongoing basis although the overall selection of 612 item headings will remain constant.
For example, in the present CPI series, one of the item headings is tinned peas. No further specifications are given, and individual price collectors are free initially to select any of the different varieties of tinned peas available locally for regular pricing. Over time the price collector may change to a different brand of tinned peas if a particular brand becomes more popular or an existing brand is no longer available. However, at all times the price collector will be asked to collect a price for tinned peas.