Possible integration of the PPP sample into the Czech CPI basket: advantages and limitations Jiří Mrázek Czech Statistical Office Eurostat Conference Reviewing the business architecture of consumer price statistics (Luxembourg, October 2009)

Motivation for integration of PPP and CPI/HICP –Existing: Saving resources for data collection Sharing data specific knowledge Higher comparability of PPP and HICP –Arising: Demand for internationally comparable set of Absolute Consumer Prices (ACP)

Absolute Consumer Prices (ACP) - possible source –PPP: Ideal as starting sample Collected every 3 years only –CPI/HICP: Reflect national consumer pattern, no regard to international comparison (so far) Strong human, financial and technical resources Elaborated system of routine data collection and validation => This presentation deals with possibility of ACP based on routine CPI/HICP production

Content of this presentation –Question: How many internationally comparable items are already contained in the CPI basket and how many can be included? (Can future ACP sample be integrated into CPI?) –Answer (content of the presentation): Finding common EU27 representative set of consumer items from PPP survey (Basic set = approximation of ACP sample) Intersection with current Czech CPI basket Advantages of the integration Limitations of the integration

Looking for common EU27 sample –Basis - 6 PPP surveys : E06-1 Foods, drinks and tobacco E06-2 Personal appearance E07-1 House and garden E07-2 Transport, restaurants and hotels E08-1 Services E08-2 Furniture and health –Totally 2541 consumer items priced: Of which 1382 in all 3 country groups (N, S, C) together

Survey E06-1 vs. all surveys combined

Survey E08-2 vs. all surveys combined

What are the 46 items priced and marked with asterisk by all the 27 EU countries? –Only 2 items with relatively high weight: Diesel (normal) Petrol, 95 octane –Other items with mostly low or negligible importance, e.g: Fresh bananas, Chicken breast – fillets, Milk chocolate, plain, 30% cocoa content Shaving gel (Gillette), Battery (AA, 1.5V, multipack), Music CD (Pop, Top 5), Cappuccino, in bar/café, at the table, Driving school, 1 lesson Issuing passport

Selection of common set of consumer items - structure –Out of the 676 items common in EU27 (priced at least by 25, given asterisk at least by 17) those marked by asterisk in CZE were selected (597 items) – Basic set –Note: Education is missing

Basic set vs Czech CPI sample - method –Methodical differences: PPP item description is narrow, small variance of prices is allowed CPI item (Elementary Aggregate - EA) description is looser; but often several more specific varieties pre-defined within EA description –Example of different description: PPP: Long-grain rice, white, parboiled, c ooking time: min, g, not in cooking bags, well known brand, exclude UNCLE BEN'S CPI: Long-grain rice, white, not in cooking bags »Specific variety: specific brand, specific size, parboiled (or not), specific outlet –PPP set in CPI basket – method of comparison: If given PPP item fits description of CPI Elementary Aggregate or one of its varieties, PPP item is considered as included in CPI The match has not to be exact, it is sufficient if a new variety corresponding to PPP description can be introduced within some EA

Basic set vs CPI sample – result of comparison –About 229 items of the Basic set is already included in CPI (or after small adjustment of the definition) –About 300 items could be theoreticaly included, if EAs suitably replaced without loosing representativity of the CPI basket

Advantages of integration of PPP and CPI/HICP - statistical –Higher consistency of the price index update of regular PPP survey results to next year –Price index update of individual PPP seasonal items (namely Food) –PPP space coefficient source –Countries have a common set of absolute price data available monthly –Common subset of HICP samples among EU27 countries: Better comparability of HICPs between countries Similar QA of HICPs

Advantages of integration - resources –Possible source of substantial part of Absolute Consumer Prices (ACP) => lower burden on extra survey –Potentially lower burden on PPP survey

Limits of integration - statistical –Table shows to which extent is the Basic set representative for CPI basket –Small part of CPI basket covered, international sub-basket is not representative for CPI

Limits of integration - statistical

Limits of integration – organization, resources, methodology –Common ACP set has to be coordinated by Eurostat like PPP –Difficult to rebuilt CPI basket to integrate PPP/ACP set –Difficult to match PPP description in CPI (collection systems) –Difficult to update CPI survey based on central EU suggestions (for PPP it is more easier)

Recommendations –ACP should be based on common PPP set –ACP should be tightly coordinated with PPP survey –ACP can be gradually integrated to some extent into CPI –Future extensions of ACP should be limited (one in => one out) –Integration is possible, but do not expect too much

Thank you for your attention