Information Note on Implications of COVID-19 on the Consumer Price Index - March 2021

March 2021

It was estimated that households, on average, were unable to consume 14.8% of the goods and services in the CPI basket of goods and services in March. These mainly consisted of the following items included in the CPI:

• Package holidays
• Restaurants, pubs and hotels
• Theatres and Concerts
• Sports admittance
• Hairdressing salons and personal grooming establishments

In addition to this, due to the closure of some outlets, household consumption for many other goods and services was significantly reduced.

Impact on CPI data collection

Prices are collected by the CSO for the purposes of the CPI and HICP by means of direct pricing in retail outlets and surveys by office-based staff (* see more detail below). Survey-based price collection in March 2021 was completed successfully by office-based staff, with minor exceptions, using the usual data collection methods. Since April 2020, due to the restrictions on movement imposed during the COVID-19 pandemic, the CSO was not able to send price collectors into retail outlets to collect information for the CPI.

The CSO sustained the following contingency measures to collect CPI price data for March which were initially implemented in April 2020:

1. Price information was collected from websites and the CSO engaged with large retailers that provided price data to replace the price information which was previously collected in-store by the price collectors. The CSO maximised the price collection from these alternative sources to the greatest extent possible and ensured that the information used for the CPI was comparable between February and March.
2. The CSO engaged with companies and sole traders that normally provide price information in specific sectoral surveys i.e. mainly in services. The CSO appreciates the continued support and assistance of these businesses throughout the COVID-19 pandemic.
3. Price change was imputed for items in the basket where consumption had not recommenced in March or it was not possible to collect reliable price information.

CPI and HICP are fixed weight indices

Price changes for the goods and services in the CPI and HICP are aggregated using weights that reflect household consumption patterns in the previous year. For example, food currently has a weight of almost 12.5% in the CPI basket of goods and services, which means that 12.5% of household consumption expenditure was spent on food. The weights for both the CPI and HICP are updated at the beginning of each year and are held fixed throughout the year. This approach is necessary to ensure that the indices only reflect price changes and not changes in the quantities of products consumed.

Harmonised approach across EU

Given that the aggregation weights must remain fixed, it is necessary to impute the price change for product groups where (i) household consumption has ceased and transactions did not take place in March or (ii) it is not possible to collect prices. To ensure a harmonised approach to imputation across the EU, Eurostat published a guidance note on the compilation of the HICP in the context of the COVID-19 crisis. The Eurostat guidance was prepared in consultation with National Statistical Institutes (NSIs) including the CSO, and the CSO has implemented this guidance for the CPI and HICP.

Imputation for March 2021

In total, 14.9% of the CPI basket required imputation for March because of the COVID-19 pandemic. This comprised 14.8% of the basket where consumption had ceased and 0.1% where it was not possible to collect prices. Table 1 provides a summary of data collection and imputation for March 2021 by ECOICOP division[1].

The main imputation method used was “nearest aggregate estimation”, where the price development of a similar available product or service was used to estimate price change. For package holidays, the seasonal nature of these items was taken into consideration when imputing a price change. For other product groups such as theatres, prices were carried forward from February 2021 to estimate prices for March 2021.

Price change for imputed items

It is possible to compare the monthly rate of change for (1) the items in the CPI basket where price change was imputed (14.9% of the basket) and (2) the items in the basket where no imputation took place (85.1% of the basket) i.e. where the CSO was able to collect price information. The overall monthly change in the CPI in March 2021 was +0.8%. The monthly change for the items where price information was collected was +0.9%. The monthly change for the items that were imputed was +0.4%.

Table 1: Summary of CPI data collection and imputation for March 2021 by ECOICOP Division

Standard VAT rate returns to 23% March 2021

Value Added Tax (VAT) is a tax charged on the sale of most goods and services in Ireland. Different rates apply to various goods and services. VAT and all compulsory service charges are included in the prices observed as part of the compilation of the CPI.

From the 01^st September 2020 to 28th of February 2021, the standard VAT rate was temporarily reduced from 23% to 21%. From 1^st March 2021 the standard VAT rate has returned to 23%. This rate applies to a wide range of goods and services including adult clothing, electrical goods, alcohol, non-basic food items and many professional services etc.

Further information on VAT rates can be found on

https://www.revenue.ie/en/vat/vat-rates/search-vat-rates/index.aspx

* Note on price collection for the CPI

There are two price collection methods used by the CPI. Direct price collection is used for 478 of the 615 item headings in the CPI basket of goods and services. Approximately 50,000 prices are collected monthly by 80 price collectors in retail outlets throughout the country. Central price collection is used for the remaining 137 item headings. Prices are collected centrally by CSO staff with minimal field work. In practice, this involves the use of postal, e-mail and telephone enquiries along with internet price collection. Approximately 3,000 prices are obtained using this method. In terms of basket weights (proportion of total household expenditure accounted for by each item in the basket), each price collection method accounts for about 50% of the basket. Therefore, both collection methods are equally important to the continued statistical quality of the CPI for the duration of COVID-19. 

[1] ECOICOP is the Classification of Individual Consumption by Purpose Adapted to the Needs of Harmonised Indices of Consumer Prices (2000).