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Technical Notes
Consumer Price Index

COMPONENTS

A . Market Basket

The CPI market basket contains a sample of goods and services commonly purchased by a group of households in a particular area. The 1988-based CPI series has 13 regional market baskets which are the combined market baskets of the bottom-30% and upper-70% income groups for each region.

Computation of the provincial CPI uses the market basket for the region where the province belongs.

The number of items comprising the market basket for all-income group for each region is shown below:

Metro Manila
Region 1
Region 2
Region 3
Region 4
Region 5
Region 6
= 384
= 548
= 565
= 526
= 651
= 525
= 645
Region 7
Region 8
Region 9
Region 10
Region 11
Region 12
= 500
= 524
= 549
= 619
= 635
= 582

  

B. Weighting System

Weights used in the current CPI series were derived from the results of the 1988 Family Income and Expenditures Survey (FIES). The weight is computed as the proportion of expenditure on a specific group of items to total expenditure.

Aggregated weights for the six item major groups are shown below:

Weights for the CPI (1988 = 100)

Commodity Group Philippines Areas
Outside
Metro
Manila
Metro
Manila
All Items 100.00 24.42 75.58
Food, Beverage and Tobacco 58.47 11.84 46.63
Clothing 4.35 0.87 3.49
Housing and Repairs 13.30 5.40 7.90
Fuel, Light and Water 5.36 1.45 3.91
Services 10.90 3.32 7.58
Miscellaneous 7.59 1.53 6.06

C. Base Period

The CPI series constructed by NSO since 1945 has undergone several revisions. The 1988-based CPI, the current series, is the sixth rebasing.

D. Index Formula

The construction of the CPI basically uses a Laspeyres Formula (fixed base year weights).

The formula is modified as the weighted arithmetic mean of price relatives. That is,

Index =   Sum ((Pn / Po )* (Po * Qo))
---------------------------- x 100
           Sum (Po * Qo)

      Pn = current price
      Po = base year price or base price
      Po*Qo = base year weight

E. Sample Outlets

Sample outlets are establishments where prices of sample commodities are quoted. There are about 9,000 outlets nationwide.

The outlets were selected according to the following criteria:

1. Popularity of the establishment along the line of goods to be priced
2. Permanency of outlet
3. Consistency or completeness of stock
4. Accessibility of outlet

The selected outlets are permanent sources of price data that cannot be changed at will unless necessary because of the following reasons:

1. Closing of business
2. Disappearance of item from the stock for more than three consecutive months or permanently

An outlet may be completely abandoned or partly only, i.e., one or more items in the survey list disappeared from its stock. It is replaced with the nearest retail outlet, that is, within the vicinity of the replaced outlet. The choice of which outlet to choose is left to the discretion of the price canvasser using the criteria for regular outlet selection. Once a substitute outlet has been selected, the outlet becomes a permanent outlet for the succeeding survey rounds.

 
DEFINITION OF TERMS

A. Consumer Price Index (CPI)

    Consumer price index (CPI) is a measure of change in the average retail prices of goods and services commonly purchased by a particular group of people in a particular area.

B. Market Basket

    Market basket refers to a sample of goods and services used to represent all goods and services bought by a particular group of consumers in a particualr area.

C. Base Period

    Base period, usually a year, is the reference period of the index number. It is the period at which the index is set to 100.

D. Sample Outlets

    Sample outlets are outlets or establishments where prices of sample commodities are quoted.

E. Weight

    Weight is a value attached to a commodity or group of commodities to indicate the relative importance of that commodity or group of commodities in the market basket.

F. Inflation Rate

    Inflation rate (IR) is the annual rate of change or year-on-year change in CPI. That is,

    Inflation Rate (IR) =               CPIn - CPIo
    ------------------------------- x 100
                        CPIo

    where:

      CPIn = current month's index for all items
      CPIo = same month last year's index for all items

G. Purchasing Power of the Peso

    Purchasing Power of the Peso (PPP) shows how much the peso in the base period is worth in another period. It gives an indication of the real value of the peso in a given period relative to the peso value in the base period.

Purchasing Power of the Peso (PPP) = 1 / CPI(All Items) * 100

H. General Wholesale Price Index

    Wholesale price index (WPI) measures the monthly changes in the general price level of commodities (usually in large quantities) that flow into the wholesale trading system.

    The 1978 - based WPI series has a total of 376 commodities or items traded in the wholesale market. These items include producer's materials, consumer goods and capital goods which may either be raw materials, intermediate products or finished goods. Moreover, they may also be domestically produced (including exports) or imported for resale. These items are grouped according to the Philippine Standard Commodity Classification (PSCC).

    The weights of the current WPI utilizes the value of sales of commodities traded in the wholesale market in 1978 as derived from the 1974 Input-Output tables. It covers only the National Capital Region or Metro Manila. The weighted average of relatives method, basically the Laspeyre's formula, is used in the construction of WPI.

I. Retail Price Index

    Retail price index (RPI) is a measure of the changes in the retail price at which retailers dispose of their goods to consumers or end-users.

    The current RPI still uses 1978 as the base year and covers only the National Capital Region (NCR) or Metro Manila.

    While the 1972-based series was computed using the geometric mean without any weighting pattern, the present series is constructed using the weights based on the 1974 Input-Output tables on the values of expenditures of goods and services of consumers from the retail sector, estimated at 1978 prices. The weighted average of relatives method, basically the Laspeyre's formula, is used in the computation of the index.

    The present market basket has a total of 479 commodities grouped according to the Philippine Standard Commodity Classification (PSCC).

Source: National Statistics Office


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