Background Notes

Consumer Price Index

Definition

The Consumer Price Index is designed to measure the change in the average level of prices (inclusive of all indirect taxes) paid for consumer goods and services by all private and institutional households in the country and by foreign tourists holidaying in Ireland.

Consumer Price Index (CPI)

Approximately 53,000 prices are collected for a representative basket consisting of 632 item headings in a fixed panel of retail and service outlets throughout the country during the week containing the second Tuesday of each month up to and including the third Tuesday of each month.  The dates to which the January index relates are Monday 13th to Tuesday, 21st January 2014.

Scope of the Index

1. Population Coverage: All private and institutional households in the State and the expenditure of foreign tourists within Ireland.  It does not include the expenditure of other non private households.    Expenditure which occurs abroad by Irish residents is also excluded.  In statistical terms coverage is referred to as the domestic concept.
2. Geographic Coverage: Covers the whole of the Republic of Ireland.  Pricing takes place in 84 locations (cities and towns) throughout the country.  These sampling points are located in Dublin city and county, the four regional cities of Cork, Limerick, Galway and Waterford, approx. 80% of towns with a population of 10,000 and over, approx. 70% of towns between 5,000 and 9,999 and a smaller proportion below this threshold.  The results are weighted to represent the distribution of the population and its related consumer expenditure.
3. Item Coverage: All goods and services bought by the reference population for the purposes of consumption are included in the index.  Expenditure on capital assets and investments, gambling and certain other activities are however excluded.  There are 632 item headings and 12 division headings based on the COICOP classification.  With each rebase the coverage of goods and services is reviewed to ensure that it continues to be representative of consumer tastes and purchasing practices.

Price Collection   

Personal visits are made to retail outlets by some 80 price collectors on a monthly basis.  Approximately 50,000 price quotations are gathered in this way.  In addition, 126 special inquiries covering items such as utility charges and services are conducted by post, telephone and e-mail in conjunction with internet price collection.  Most prices are collected monthly, some quarterly and others annually.  The CSO supplies general specifications to price collectors and price collectors are free initially to select a brand and in certain cases, size.  This allows for a wide variety of different brands of the same item to be priced throughout the country.  Once selected, the same item/brand is priced on a monthly basis in order to ensure matched price quotations.  If an item disappears, substitution can occur but that price is excluded until matched prices are available for the same comparable item for two consecutive months.  The CSO wishes to put on record its appreciation of the co-operation and assistance it receives from retail outlets and other business concerns.

Classification

The classification used in the CPI is based on a version of the Classification of Individual Consumption by Purpose Adapted to the Needs of Harmonised Indices of Consumer Prices (2000) (COICOP).  This replaced the former national classification which was used up to December 2001.  The COICOP classification breaks consumer expenditure into twelve different divisions covering a comprehensive range of consumer goods and services.

Annual Update of CPI Weights

For 2014, the CPI COICOP class (4-digit) level weights were updated with a reference period of December 2013.  The weights were based primarily on the 2012 National Accounts Household Final Monetary Consumption Expenditure (HFMCE) data.  The expenditure data were price updated at CPI COICOP class level to December 2013 using the price movement of the corresponding CPI COICOP class indices.

The sample of items in the basket, retail outlets and service providers and locations remains unchanged from the December 2011 rebase.

CPI Item Weights

The CPI measures in index form the monthly changes  in the cost of purchasing  a fixed representative ‘basket’ of consumer goods and services (i.e. Laspeyres formula).  Identical items are priced in the same outlet on each occasion so that changes in the cost of this constant basket reflect only pure price changes.  The current basket of goods and services consists of 632 representative items which were selected as part of the December 2011 rebase and remain unchanged for 2014.  The representative share of each item in the basket is proportional to the average amount purchased by all households in the State and foreign tourists in Ireland based primarily on the 2009/2010 Household Budget Survey (HBS) and estimates of expenditure by foreign tourists across a range of consumer goods and services.  When the new COICOP class (4-digit) level weights were introduced with the January 2013 index, the CPI item weights were also updated.  The CPI item weights were calculated on a pro rata basis using proportions from the December 2011 rebase.  A similar approach was taken when updating the 2014 item weights.

Methodological Details

A full methodological description of the new series is available in the Consumer Price Index Introduction of Updated Series (Base: December 2011 = 100) which is published on the CSO website at:

http://www.cso.ie/en/media/csoie/surveysandmethodologies/documents/pdfdocs/CPI_Intro_of_Updated_Series_Base_Dec2011.pdf

Rebase

The index has been rebased with effect from December 2011, the eleventh series since the foundation of the State.

The rebase of the current CPI resulted in a number of methodological changes:

• Updating the expenditure weights;
• A revision of the sample of goods and services;
• An update of the sample of areas priced;
• Calculation of the mortgage interest component.

Goods and Services

The CPI basket can be split into two constituent parts - goods and services according to the following definitions.

Goods

Goods are defined as non service items usually purchased and transportable from a retail outlet - the basket excluding services.

Services

Services include electricity, gas, telecommunications and other public utilities, alcoholic beverages consumed on licensed premises, meals out, accommodation services, public transport, medical fees, insurances, education fees, hairdressing & other personal services, childcare & social protection, entertainment & recreation services, mortgage interest & rents, package holidays and other miscellaneous services.

Utilities and Local Charges

Includes electricity, gas, landline telecommunications and waste collection & disposal charges.

Mortgage Interest and the Local Property Tax in the CPI

Mortgage interest was first included in the CPI at the November 1975 rebase. The use of mortgage interest in the CPI reflects a user-cost approach to measuring owner-occupied housing.  This approach has involved measuring changes in average mortgage interest costs over time.  The household charge was introduced to the CPI in April 2012 and subsequently became the local property tax in July 2013. The local property tax is included in the basket under the item 'miscellaneous goods and services', which is part of COICOP 12.7.0.  The inclusion of the local property tax is consistent with the user-cost approach utilised for owner-occupied housing.  In the interest of transparency, an index excluding both mortgage interest and the local property tax is provided in Table 2 of the release to allow for their impact in the CPI to be seen.

Mortgage interest and the local property tax are excluded from the HICP.   

Harmonised Indices of Consumer Prices

Introduction

The European Union-Harmonised Indices of Consumer Prices (EU-HICP) is calculated in each Member State of the EU.  The purpose of this index is to allow the comparison of consumer price trends in the different Member States.

Comparison with CPI

The methodology now adopted for the construction of the national CPI is identical to that recommended for the HICP.  Thus the two indices only differ in respect of the coverage of certain goods and services and the treatment of insurance.  The current EU reference base period (Year 2005=100) is however retained for ease of comparison with other EU countries.

Excluded  Items

The following items, constituting approximately 8.3% of the Irish CPI expenditure weighting, are excluded from the HICP:

• mortgage interest
• building materials
• motor car tax
• motor cycle tax
• motor car insurance (non-service)
• contents insurance (non-service)
• dwelling insurance
• union subscriptions
• local property tax (part of the item 'miscellaneous goods & services')

Annual Update of HICP Weights

For 2014, the CPI COICOP class (4-digit) level weights were updated with a reference period of December 2013.  The weights were based primarily on the 2012 HFMCE data.  The expenditure data were price updated at HICP COICOP class level to December 2013 using the price movement of the corresponding HICP COICOP class indices.

The sample of items in the basket, retail outlets and service providers and locations remains unchanged from the December 2011 rebase.

Monetary Union Index of Consumer Prices (MUICP)

Euro area inflation is measured by the MUICP (‘Monetary Union Index of Consumer Prices’ as defined in Council Regulation (EC) No 2494/95 of 23 October 1995) which is the official euro area aggregate.  The MUICP is calculated as a weighted average of HICPs of the 18 countries in the euro area.  Country weights are computed every year reflecting the country’s share of the household final monetary consumption expenditure in the euro area total.

Classification System

The coverage of the indices is based on the international classification system, Classification of Individual Consumption by Purpose Adapted to the Needs of Harmonised Indices of Consumer Prices (2000) (COICOP).

COICOP

Prior to the introduction of the December 2001 based series in January 2002 the CPI used a national classification while the EU Harmonised Indices of Consumer Prices (HICP) used COICOP.  To ensure greater comparability CPI and the HICP have both used the COICOP since December 2001.

The COICOP classification is based on 12 divisions:

01    Food and Non Alcoholic Beverages

Includes food and non alcoholic beverages purchased in supermarkets, small shops, speciality shops and petrol station forecourt outlets.  It excludes meals out which are covered under 11 Restaurants and Hotels.

02    Alcoholic Beverages and Tobacco

Includes alcoholic beverages purchased in off licences and supermarkets but excludes alcohol consumed on or within licensed premises which is classified under 11 Restaurants and Hotels.  It also includes tobacco products.

03    Clothing and Footwear

Mens, ladies and childrens clothing and footwear, sports and leisurewear and services such as laundry and dry cleaning, shoe repair, dress hire and alteration.

04    Housing,  Water, Electricity, Gas and Other Fuels

Covers rents, mortgage interest repayments, waste collection and disposal charges, goods and services for maintaining, decorating and repairing dwellings and domestic energy products such as electricity, gas, home heating oil and solid fuels.

05    Furnishings, Household Equipment and Routine Household Maintenance

Covers household items such as furniture, carpets and other floor coverings, household textiles and soft furnishings, household appliances and other household items such as utensils, tools, garden equipment and non-durable items for cleaning, washing and other day to day household activity.  Also included are services such as electrical repair, cleaning and gardening.

06    Health

Includes medical products, appliances and equipment, hospital charges and out patient services supplied by doctors, dentists, opticians, physiotherapists and practitioners of alternative and complimentary medicine.

07    Transport

Includes the purchase of new and second hand vehicles, spare parts, car maintenance, fuels and lubricants, public transport and services such as parking, motor association subscriptions, car wash, toll charges, driving lessons, driving test, driving licence and car hire.

08    Communications

Postal and telecommunications services.

09    Recreation and Culture

Includes items such as audio visual and photographic equipment, computers, music and DVDs, sports and recreation goods, games and toys, items connected with gardening and pets, recreational, sporting and cultural activities and events, newspapers and other reading material, package holidays and other items connected with recreation and culture.

10    Education

Includes pre-primary and primary, secondary, third level fees and other education and training such as night courses and examination fees.

11    Restaurants and Hotels

Includes meals in restaurants and hotels, fast food and takeaways, cafes and canteens; alcohol consumed on or within a licensed premises and accommodation services supplied by hotels, guesthouses and hostels.

12    Miscellaneous Goods and Services

Covers a wide range of items including hairdressing and other grooming; goods for hygiene, hair and body care; personal goods such as jewellery, handbags and wallets; childcare and other social protection services; insurance, financial services and other services including funerals, weddings, legal and professional services.  The household charge was added to this division, in the CPI, under the item 'miscellaneous goods and services' in April 2012.  The household charge subsequently became the local property tax in July 2013. The local property tax is not included in the HICP.

Calculating percentage changes in the index

The movement of the CPI, HICP and their subindices are expressed as percentage changes, rather than changes in index points, because index point changes are affected by the level of the index in relation to its base period, whereas percentage changes are not.  The example below illustrates the computation of index point and percentage changes.

Estimating Contributions

A contribution represents the amount of the overall percentage change in the All Items CPI which is accounted for by any given category.  It can be estimated for any category in the CPI (e.g. the twelve COICOP 2-digit divisions) and for any period of time.

Data Required:

1. Base weight for the category for which you wish to estimate the contribution.
2. Current index for the category in question (same base period).
3. Previous index for the category in question (same base period).
4. All Items CPI for the previous period in question (i.e. the start period).

Example:

To estimate the contribution of Food & Non-Alcoholic Beverages (COICOP 01) to the overall annual percentage change in the CPI up to July 2006 you would need the following data

Steps in the calculation

Therefore your estimated contribution of Food & Non-Alcoholic Beverages to the percentage change in the CPI for the year to July 2006 is 0.20.  The actual published figure was 0.19.  The difference is due to the fact that actual published contributions are calculated using data to more decimal places.

It is more complicated to estimate contributions where more than one base period is involved, as the base weights will have changed (e.g. to estimate a contribution for the period January 2000 to January 2005 involves the November 1996=100 base and the December 2001=100 base).  For assistance in this regard please contact the CPI section.

Data Dissemination on www.cso.ie

The CSO website (www.cso.ie) now holds a range of CPI data.  Within the Consumer Prices section of the website (accessed via the ‘Prices’ link on the homepage), a range of principle statistics are held including overall annual percentage changes from 1977 to date, All Items CPI annual figures from 1996 to date and COICOP division monthly and annual figures from 2002 to date.

Further data can be accessed at www.cso.ie by clicking on ‘Databases’ and ‘Statbank CSO Main Data Dissemination Service’.  The subject area is ‘Economy’, ‘Prices’, ‘Consumer Prices’ and ‘Consumer Prices - Annual Series’ or ‘Consumer Prices - Monthly Series’.  The website is updated each month at 11am on the CPI publication day.

The Database Direct for the CPI contains monthly and annual index numbers and percentage changes for the following categories and time periods:

In addition, the following data can also be accessed within Database Direct.

• Monthly index numbers and annual percentage changes for the Constant Tax Price Index from January 1997 to December 2006.
• National average prices for selected CPI goods and services from January 1997 to date.
• All Items CPI numbers for various base periods from 1922 to date.
• Detailed sub-indices are available from 2003 to date. 

Any queries relating to the usage of the web dissemination database for CPI data should be directed to cpi@cso.ie

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