1. How do we measure inflation? Some measurement problems Rósmundur Guðnason, Statistics Iceland Seventh meeting of the International Working Group on Price Indices (The Ottawa Group), Paris, France, 27-29 May 2003

2. Substitution in the CPI Item substitution, by using the geometric mean Item substitution, by using the geometric mean Outlet substitution if a good is not available Outlet substitution if a good is not available Shopping substitution Shopping substitution

3. Shopping substitution bias Change in shopping habits. Change in shopping habits. The average prices of goods faced by the households change. The average prices of goods faced by the households change. Although the prices in the shops can be unchanged. Although the prices in the shops can be unchanged. It is necessary to take that price effect into consideration. It is necessary to take that price effect into consideration. Quality adjustment necessary. Quality adjustment necessary.

4. Household shopping substitution bias In reality the price policy of a shop does not matter but the consumption behaviour of the households does. In reality the price policy of a shop does not matter but the consumption behaviour of the households does. Therefore it seems more appropriate to talk about households shopping substitution bias instead of outlet substitution bias Therefore it seems more appropriate to talk about households shopping substitution bias instead of outlet substitution bias

5. Service level- factors affecting quality of a shop Commodity selection Commodity selection Availability of items Availability of items Number of stores, location Number of stores, location Cash register number Cash register number Opening hours Opening hours Method of payment Method of payment

6. Quality adjustment shopping Similar service level except for assortment. Similar service level except for assortment. Comparing the items available in the shop which closes down with the items in the replacement shop. Comparing the items available in the shop which closes down with the items in the replacement shop. The difference in price level between the stores for goods available in both stores are used to measure the price change. The difference in price level between the stores for goods available in both stores are used to measure the price change. The price change taken into account. The price change taken into account.

7. Inflation and shopping bias Inflation increased 2001, yearly change, December 9,4 per cent. Inflation increased 2001, yearly change, December 9,4 per cent. 10 per cent of consumer changed over to discount stores. 10 per cent of consumer changed over to discount stores. Less difference in service level. Less difference in service level.

8. Changes made to the CPI Solved with quality adjustment. Solved with quality adjustment. Half of the change taken as price change. Half of the change taken as price change. Correction for changes in household’s shopping substitution in December 2001, April 2002 and May 2003, a decrease by nearly 0.55 per cent. Correction for changes in household’s shopping substitution in December 2001, April 2002 and May 2003, a decrease by nearly 0.55 per cent.

9. Sources available HBS data from receipts HBS data from receipts Detailed sales information Detailed sales information VAT information VAT information Very small HBS Very small HBS Reliable sources, led to the correction that was done to the CPI in December 2001 Reliable sources, led to the correction that was done to the CPI in December 2001

10. Transactions and amounts from receipts Amount of expenditures Amount of expenditures 1995 total survey, 12 per cent 1995 total survey, 12 per cent 2000 total survey, 26 per cent 2001 total survey, 31 per cent 2000 total survey, 26 per cent 2001 total survey, 31 per cent Number of records Number of records 1995 total survey 41 per cent, food and bev. 53 1995 total survey 41 per cent, food and bev. 53 2000 total survey 69 per cent. food and bev. 84 2000 total survey 69 per cent. food and bev. 84 2001 total survey 74 per cent. food and bev. 89 2001 total survey 74 per cent. food and bev. 89

11. Store weights Three groups control 85-90% of the groceries market. Three groups control 85-90% of the groceries market. 11 stores, store weights used. 11 stores, store weights used. Similar prices within each store in the country. Similar prices within each store in the country. Store weight opens opportunities for monitoring shopping substitution constantly. Store weight opens opportunities for monitoring shopping substitution constantly.

12. Procedures for quality adjustments Move the weights between stores. Move the weights between stores. Compare prices for available goods. Compare prices for available goods. Done by adjusting prices in base month. Done by adjusting prices in base month.

13. Results Shopping habit can change suddenly the shopping bias can therefore be considerable. Shopping habit can change suddenly the shopping bias can therefore be considerable. Need to be monitored on a continous bases. Need to be monitored on a continous bases. Collect receiptes in the HBS, makes that task easier. Collect receiptes in the HBS, makes that task easier. Store weights if possible make that tasks easier. Store weights if possible make that tasks easier. Shopping substitution bias can be both downward and upward. Shopping substitution bias can be both downward and upward. Both cases need to be taken into consideration. Both cases need to be taken into consideration.