CPI and PPI Presented by: The Indices and Price Analyses Unit Statistical Institute of Jamaica (STATIN) 11/22/2018

Structure of the Presentation OVERVIEW Introduction to the CPI The HES and the CPI Weights for the CPI Computation of the CPI Price Collection Index Calculation 11/22/2018

OVERVIEW The CPI and the PPI are indicators of macroeconomic performance They are direct indicators of the purchasing power of money in various types of transactions and other flows involving goods and services They are also used as deflators in National Accounts. They provide an integrated view of price developments pertaining to production and consumption 11/22/2018

Introduction to the CPI The Consumer Price Index is Jamaica’s most widely used measure of the rate of inflation. The indices are also used to compare movements of prices between regions as the CPI is computed monthly for three regions: Greater Kingston Metropolitan Area (GKMA) Other Urban Centres (OUC) Rural Areas 11/22/2018

What is the CPI? The Consumer Price Index measures changes in the general level of prices of consumer goods and services purchased by Low-Middle Income private households. It is the best economic instrument to use when determining the effect of changes in retail prices on the average household budget. 11/22/2018

The Contents and Structure of the CPI The “basket” was derived from HES 2004 – 2005 and represents a mix of consumer products purchased by the average household. 11/22/2018

Weights The amount of money spent on each item in the CPI “basket” is compared to total household spending to obtain the relative importance or “weight” of the commodities in the “basket” . The weights obtained from HES 2004-2005 were price updated to December 2006 – the base period that is being used for the CPI This price updating of the weights is also done on a monthly basis. 11/22/2018

CPI WEIGHTS based on HES2004-5 COICOP DIVISION AND GROUP WEIGHT Food and Non-Alcoholic Beverages 37.4 Alcoholic Beverages, Tobacco 1.4 Clothing and Footwear 3.3 Housing, Water, Electricity, Gas and Other Fuels 12.8 Furnishings, Household Equipment and Routine Household Maintenance 5.0 Health Transport Communication 4.0 Recreation and Culture 3.4 Education 2.1 Restaurants and Hotels 6.2 Miscellaneous Goods and Services 8.4   TOTAL 100 11/22/2018

Weights 2004-5 11/22/2018

The Steps for Computing the CPI Deriving the Inflation Rate Deriving the Aggregate Index Computing the Index Deriving a Price Relative Price Collection and Editing 11/22/2018

Computation of the CPI The computation of the monthly CPI involves: calculating a series of index numbers at the detailed/item level of the index adding them to derive an aggregate index number.  Once the prices for goods and services have been collected, they are: examined individually to ensure the validity of the data being used in the CPI calculations. Prices are compared with the previous month's data in an effort to monitor price fluctuations and maintain consistency from month to month. 11/22/2018

PRICE COLLECTION Monthly, (quarterly and annual for some special items) price collection surveys are carried out at outlets such as: grocery stores, markets, clothing and footwear stores, furniture and appliance shops, garages, doctors, dentists, law offices, schools, insurance companies and barber and beauty salons. 11/22/2018

PRICE COLLECTION cont’d. Price data are also collected from the appropriate authorities. In total, over 30,000 individual price quotations from across the entire island of Jamaica are included in the computation of the index The prices are collected from over 750 establishments or outlets. 11/22/2018

INDEX CALCULATION The current CPI represents the Low to Middle Income group which represents approximately 85 per cent of the population This Income group had a median expenditure of $309,000 in 2004-2005 The CPI is computed using the short-term price relative version of the Laspeyres Price Index 11/22/2018

THE PRODUCER PRICE INDEX (PPI) 11/22/2018

Outline for PPI Discussion What is the PPI ? PPI Structure & the JIC Dissemation of the PPI PPI vs. CPI Base Year PPI Parameters Laspeyres formula Selection – Establishments & Products Price Collection Production Cycle Main Uses of the PPI Publications for the CPI & PPI 11/22/2018

What is the Producer Price Index (PPI)? PPI represents a family of indices that measures the average change over time in the selling prices received by domestic producers STATIN publishes an Output PPI that measures the rate of change in the prices of products sold as they leave the producer. 11/22/2018

PPI Structure & J IC The index is industry-based with each establishment classified according to its main activity The Jamaica Industrial Classification (JIC) system is used to group economic activities and products to provide an organizational structure for the PPI 11/22/2018

Dissemination of the PPI The current PPI covers two industries: Mining & Quarrying Manufacturing The index for Agriculture is in its developmental stage For the two Industries there are over 140 establishments with a selection of over 400 products are represented in these two industries. 11/22/2018

Dissemination Levels of Index (A) Mining & Quarrying Bauxite Mining & Alumina Processing Other Mining & Quarrying 11/22/2018

Dissemination Levels of Index cont’d (B) Manufacturing Food, Beverages & Tobacco Textiles, Wearing Apparel & Leather Products Wood, Wood Products & Furniture Paper & Paper Products Chemicals & Chemical Products 11/22/2018

Dissemination Levels of Index cont’d (B) Manufacturing cont’d Refined Petroleum Products Rubber & Plastic Products Other Non-Metallic Mineral Products Fabricated Metal Products excl. Machinery & Equipment Products Other Manufacturing n.e.c. 11/22/2018

PPI vs CPI Both the PPI and the CPI measure price change over time for a fixed set of goods and services. However, they differ in two critical areas:-   The composition of the set of goods and services The goods and services included in the PPI are the marketed output of domestic producers. The items included in the CPI are goods and services purchased for consumption purposes by households. The types of prices collected The price collected for an item included in the PPI is the price that the producer charges for goods and services. The price collected for an item in the CPI is the retail price that the consumer pays. 11/22/2018

Base Year PPI base year is 2005 and we are currently revising the base year to 2008. Monthly prices have been collected since January 2005. The Base year index is the average price of all products for the 12 months of 2005. A monthly index is calculated as a ratio of the current months prices to the base year. 11/22/2018

PPI Parameters 1. PRICE SPECIFICATION PRICING We are interested in the price of the product and the product must be priced to constant quality (model, features, material, unit of sale, type of packaging, conditions of sale, etc.) transactions (excl. Price) must remain constant over time. If the transactions are not comparable and the price changes, we will not know if there was a pure price change or not. 11/22/2018

PPI Parameters 2. WEIGHTS Weights show the importance of a particular item relative to the other items Without weights, the relative prices for all commodities in the PPI basket would be given equal importance Weigths are almost as important as prices Over time, establishment production levels shift in response to economic conditions. Some products & industries become more important Others become less important. Eventually weights have to be adjusted to reflect the shift in the importance 11/22/2018

PPI Parameters Weights are calculated at every level. For Example: There are weights for:- For Example: Division Food, Beverages & Tobacco Major Group Beverage (alcoholic, non-alcoholic) Group Non - Alcoholic Product Group Carbonated Drinks Establishment Company Ab. Ltd. Product within establishment 10 oz. bottle (Fizzy Pop)\ Domestic & Export 11/22/2018

Deriving the Index STATIN calculates the PPI using a modified Laspeyres formula which combines: Price relatives and Weights derived from the base period, where vi = vi is the value weights allocated to each product i pti = price of the ith product in the current period p0i = price of the ith product in the base period voi = value of ith product in the base period Indices and Price Analyses Unit, Statistical Institute of Jamaica (STATIN) 28 11/22/2018

Selection of Establishments Establishments are selected for a product group according to:- (i) major activity (ii) contribution to Gross Domestic Product (GDP) (iii) contribution to a particular group 11/22/2018

Selection of Products Within establishments According to the contribution of the product to the establishment & product group Similar products make up a particular product group (Prices are collected for each selected product on monthly basis) 11/22/2018

Price Collection Monthly prices - collected with the aid of a follow-up questionnaire. Price Collection Period – 3rd & 4th week of each month. Price Collection Reference Period – Price for last transaction of the previous month 11/22/2018

Follow-up Questionnaire Used after the establishment has been initialized. Used mostly by interviewers who have monthly contact with the establishments. Ongoing process - undertaken by trained field officers 11/22/2018

Follow-up Questionnaire 11/22/2018

Assignment Preparation Assignment Preparation PPI Production Cycle Questionnaire Processing & Data Entry Computation 4 5 3 6 Data Review & Report Prep. 7 Assignment Preparation Data Collection 2 Data Collection Dispatch Fieldwork Data Collection Dispatch Fieldwork Publish Results 1 8 Assignment Preparation Data Collection 1 2 11/22/2018

Main Uses of the PPI A national accounts deflator A short-term indicator of inflationary trends For contract negotiations Required by international organizations for country comparisons As an analytical tool for business / researchers 11/22/2018

Publications for both PPI and CPI Monthly Bulletin Quarterly Bulletin with monthly Annual Review/Report 11/22/2018

THANK YOU 11/22/2018