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Information Note - The Consumer Price Index (CPI) Explained

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28 January 2022

How the Consumer Price Index is compiled

The Consumer Price Index (CPI) is designed to measure the change in the average level of prices paid by households for consumer goods and services. The index follows established international practice for consumer price indices and measures the change in prices for a fixed basket of goods and services.

The following video gives a broad outline of how the CPI is compiled

Each month, the CSO collects a target sample of about 51,000 prices for a representative basket consisting of 615 item headings from a fixed panel of retail and service outlets throughout the country. (The methods of collection have been adapted over the two years of the COVID-19 pandemic.) The basket of goods and services is updated every five years, known as the rebase, on the basis of the Household Budget Survey (HBS). The HBS provides a detailed profile of household expenditure, item by item. Following each HBS, the CSO reviews the basket of goods and services included in the CPI and establishes the weights used in calculating the index to reflect current expenditure patterns. The weight of each item in the CPI is the percentage share it represents in the total expenditure of the average household.

The CPI basket is very comprehensive and comprises of goods such as food, clothing, tobacco, fuel and furnishings, as well as services such as airfares, rent, motor insurance and haircuts. Notable changes in the CPI basket in the last rebase, in 2016, included the addition of television streaming services, avocados and craft beer, while clock radios, camcorders and disposable cameras were removed.

The most recent Household Budget Survey was in 2015/16. An updated survey was due to take place in 2021 but was deferred due to the COVID-19 pandemic and is now being collected over the course of 2022/23. The results of the updated HBS will be used in rebasing the CPI at the end of 2023 – i.e. to update the basket of goods and services which are measured in the CPI, and to update the weights of each item.

EU Harmonised Index of Consumer Prices (HICP)

The Harmonised Index of Consumer Prices (HICP) is calculated from the same price collection mechanism as the CPI. The basket of goods and services in the HICP is a subset of the CPI basket and different weights are used.

National Average Prices

The CPI collection mechanism also enables National Average Prices (NAP) to be calculated for many household staple items (e.g. butter per lb, petrol per litre, pint of lager etc.) and there is a long-standing series of national average prices published by the CSO. The NAPs are calculated based on matched price observations. Further details are available on our database on table CPM12.

Measuring price change for different types of household

The CPI measures the change in the level of prices paid by households for a fixed basket of goods and services. The collection and compilation methods are designed to meet this target definition. Great care is taken to measure product prices on a like-for-like basis.

The CPI is an average for all households. However, every household has its own unique consumption pattern and therefore its own personal experience of inflation. It would be impracticable to calculate an index for every household. However, some statistical offices have provided “personal inflation calculators” on their websites, in which users can enter a broad outline of their expenditure pattern. The CSO will consider whether a feature like this could be included on its website, to engage more directly with the public about inflation.

The weights currently used in the CPI are based on the 2015/16 Household Budget Survey results for all households. The HBS results also include data on the consumption patterns of households at different income levels and for other breakdowns of household types. Thus, it would in principle be possible to calculate an index using weights for households at different income levels or other breakdowns. However, a calculation based on 2015 household budget data would not reflect changes in income distribution or consumption patterns over the past seven years.

The next Household Budget Survey is about to be collected over the course of 2022/23. This will be used to update the CPI basket and weights at the end of 2023. At that point the CSO will also be able to analyse the feasibility and technical implications of producing price trend statistics for subgroups of the household population, e.g. lower income households, pensioners, renters.

Future methods for collecting price statistics

As noted above, the CSO’s methods of collecting price statistics have been adapted over the two years of the COVID-19 pandemic. While some level of in-person data collection will continue to be needed, we are now collecting more price data from retailers in electronic formats. This includes electronic returns, webscraping and online pricing.

It will take a few years to completely bed-in these new data sources and methods. However, as we implement this change of approach, we will be able to process more price observations and produce a more detailed analysis of consumption, giving more detail on how price changes affect Irish households. We expect that this will also include new insights on the products we buy and how buying patterns change. It will take a number of years to develop this new approach to analysing CPI data; the CSO hopes to produce some first results in the next 2-3 years.

Other statistical offices have already begun this change to processing CPI data. For example in the United Kingdom, the Office for National Statistics is already developing the use of checkout data in its compilation of price statistics:

The CSO will continue to stay in touch with developments internationally and use these to inform our approach to the ongoing development of the CPI.

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