Consumer price indices - Revision 2010

Consumer price indices measure the development of the final consumer prices of goods and services, i.e. prices, which are paid by the population. The changes in the indices reflect the inflation in the Czech Republic. The price development is measured using the consumer basket, which contains several hundred of selected specific types of products and services, the elementary aggregates, which contribute to the household consumption most significantly and cover its entire breadth. The individual items are assigned a weight based on the proportion of household expenditure on goods or services of a similar nature. The consumer basket thus represents a group of representative goods and services, prices of which are the basis for monitoring of the development of consumer prices.

The consumer basket is divided according to the international classification COICOP (Classification of Individual Consumption by Purpose), which is commonly used in the European Union, into 12 main divisions and lower groups and classes of products and services.

1. Food and non-alcoholic beverages – comprises all food including non-alcoholic beverages.
2. Alcoholic beverages and tobacco – comprises alcoholic beverages and tobacco products.
3. Clothing and footwear – comprises textile products, ready-made clothing, footwear, including repair.
4. Housing, water, electricity, gas and other fuels – comprises rentals, payments for the use of cooperative dwellings, miscellaneous services relating to the dwelling, materials and services for the maintenance and repair of the dwelling, water supply, all kinds of energy (electricity, gas, heat), solid fuels.
5. Furnishings, household equipment and routine household maintenance – comprises furniture and furnishing, household textiles, bed and table linen, household appliances, cleaning and maintenance products, glassware, tableware and household utensils, dry-cleaning services, laundering services, repair of household appliances.
6. Health – comprises pharmaceutical and other medical products, dental products, services of optometrists, services of physicians, balneological care.
7. Transport – comprises personal transport equipment including repair and spare parts, insurance, automotive fuel, public transport (by railway, by road, by air, local), school transport services.
8. Communications – comprises postal services, telephone equipment (mobile phones) and telephone services.
9. Recreation and culture – comprises radio and television receivers including repair, CD, DVD and MP players, books, periodicals, toys, musical instruments, stationery, sport equipment, cultural services, sport activities, domestic and foreign holiday.
10. Education – comprises all levels of education including language teaching.
11. Restaurants and hotels – comprises meals and drinks provided by restaurants, lunches in company canteens, catering services of canteens in schools and universities, accommodation services of hotels, boarding houses, chalets, accommodation in boarding schools and universities.
12. Miscellaneous goods and services – comprises personal care services, electrical appliances for personal care, beauty cosmetic products, jewellery, watches, leather fancy goods, insurance (life insurance, insurance connected with the dwelling, car insurance), social and financial services, administration and application fees.

The selection of the individual elementary aggregates and a modification of their weights are carried out usually once in five years on the base of a standard revision of the consumer basket for the calculation of the price indices. The elementary aggregates are changed every year if needed and their weights are also adjusted. Constant weights established under the five-year revision cycles of consumer price indices are used in the first 3 years after the revision, which was in 2005. For calculation of indices from 2010, the weights were updated at the 4-digit level of the COICOP classifications using expenditures of households taken from national accounts statistics in 2008.

The last standard revision of the consumer basket for the calculation of the consumer price index was in 2011.

Starting from January 2012, the calculation of the consumer price indices is carried out on the new consumer basket based on the weights of the year 2010. The basic period was changed at the same time from December 2009 to December 2011.

In the framework of the consumer price indices revision the following were revised:

a/ selection of representatives

The choice of representatives for the revised consumer basket was done by the method of purposive sample enabling primarily to test the usefulness and uselessness of inclusion of present price representatives and preserve all representatives contribution of which to the consumption remains dominating. The changes of the price representatives were not broad, as the choice of representatives in the current consumer basket was updated in 2010 and 2011 on the base of both Eurostat´s request and inputs from price collectors.

The number of price representatives in the new consumer basket for the consumer price index calculation (cost of living) is following:

COICOP divisions	January 2007	December 2011	January 2012
Food and non-alcoholic beverages	164	161	161
Alcoholic beverages and tobacco	20	21	21
Clothing and footwear	71	67	65
Housing, water, electricity, gas and other fuels	41	46	45
Furnishings, household equipment and routine household maintenance	82	81	79
Health	47	20	18
Transport	83	80	80
Communications	3	4	4
Recreation and culture	113	111	110
Education	12	12	12
Restaurants and hotels	43	42	42
Miscellaneous goods and services	50	55	55
Total	729	700	692

In addition to the existing sub-indices, “transport by air” was newly included, in which price monitoring of tickets purchasing over the internet has been introduced, too.

The sub-indices are basic indices (December 2011 = 100) of some groups on the COICOP4 level, which were calculated separately on their own sets of representatives. This applies especially to the groups of goods and services, where exists wide range of offered products, which are frequently changed (electricity, gas, market rentals, imputed rentals, railway transport, telecommunications, financial services). Calculated sub-indices are used in the formula for the overall consumer price index calculation and by their weight in the consumer basket (determined the same as for other items) they are aggregated to higher aggregates and the total.

b/ weights construction

The consumer price index for households in total has weights on the COICOP 4 level based on the structure of expenditures of households in 2010 measured by the national accounts statistics. The weights of selected elementary aggregates in individual classes at the 4-digit COICOP level were determined on the base of the household expenditures in 2010 from household budget statistic. For the purpose of the consumer price statistics revision the Social Surveys Unit of the CZSO carried out an extraordinary annual survey with very detailed breakdown of the household expenditures in 2010. The additional information is used to establish the weighting schemes, such as service providers with tariff prices (telecommunications services, financial services …).

Besides the consumer price index for households in total, also consumer price indices (cost of living) of households of pensioners and households living in the Capital City of Prague are calculated. These indices have weights from the household budget statistics for a specific group of households and the data were adjusted by the national accounts statistics. Imputed rentals were not included in the consumer basket for households of pensioners, the same as in the previous revision.

c/ calculation of indices

Prices of individual kinds of goods and services included in the consumer basket (692 price representatives in total) are surveyed on a monthly bases, directly in the selected stores and service establishments (about 8500) by employees of the CZSO field survey units in 35 selected districts in the entire CR and in the Capital City of Prague. Part of the prices is surveyed centrally by employees of the CZSO price statistic.

From the surveyed prices, the average price for the CR is calculated for individual representatives. This price is compared with the price of the base period, which is (since 2012) December 2011. Thus, 692 individual price indices originate, from which as a weighted arithmetic mean calculated the overall consumer price index for the current month to December 2011 is calculated. These indices are by chaining added to the time series of indices with the base year 2005 = 100, from which price indices to other bases are further calculated.

For the need to comparability of consumer price indices within the European Union, the Harmonized Index of Consumer Prices (HICP) is calculated besides the national consumer price index.

Between the structure of the consumer basket of the national consumer price index for the CR and the structure of consumer basket of HICP there exist some differences. HICP weights include revenues from purchases of non-residents on the territory of the Czech Republic, but it does not include imputed rentals, yet, in contrast to the national index of consumer prices, where revenues from purchases of non-residents are not included, while imputed rentals are included.

The Harmonized Index of Consumer Prices uses chain weights which are modified each year in December. The source of updating is the national accounts data (final household financial consumption, domestic approach) of the previous year. Base period is the 2005 average.

In determination of methodology of the consumer price index processing, requirements of Eurostat resulting from the consumer price index harmonization and remarks and proposals of the Consulting Commission for the Consumer Price Statistics consisting of representatives of ministries, the CNB, research institutes, the Economic University Prague, trade unions, organizations of the retired and selected departments of the CZSO were considered. The Commission discusses the updating of the consumer basket and methodology of the consumer price processing in the next period between the revisions.