Consumer price index

0. Registration entry for subjects

0.1 Name

Consumer price index

0.2 Subject area

Prices and Consumption

0.3 Responsible authority; office, division, person etc.

Price Statistics Department
Heiðrún Erika Guðmundsdóttir
Statistics Iceland
telephone: 528 1201

0.4 Purpose and history

According to the act on the consumer price index nr. 12/1995 the index measures change in the prices of private consumption. The index was named the cost of living index before 1995 and has been calculated on different bases since 1914. The index has been based on household expenditure surveys since 1939. It is revised annually since the year 1997. Since March 2002 the annual results from the continuous HES are used for these revisions. The index base is May 1988=100 and the results of the base revisions are chained each year. The results for detailed subindices March 1997=100 are also published in accordance with the COICOP classification. An overview of the different index bases, methods and calculations are found in Icelandic Historical Statistics, table 12.15, p. 628. Estimations have been made of the development of prices from 1849 to 1914 and the results are found in Icelandic Historical Statistics labelled General Price Index found in table 12.25, p. 637.

0.5 Users and application

The consumer price index first of all measures inflation as well as being used for monetary targeting and for indexation of financial obligations according to the law on interst rates and indexation, No 38/2001.
Its main uses are:
    • In economic forecasts.
    • For indexation of rents.
    • For deflation of various types of wages, incomes and expenses.
    • In comparing inflation between states.
    • In the calculation and forecasting of purchasing power parity.
    • In the computation of the price adjustment factor in financial statements of enterprises.

    0.6 Sources

    The basis of the consumer price index is expenditure surveys, which Statistics Iceland carries out regularly. A survey was carried out in 1995 and the index from 1997-2001 was largely based on its results. From the year 2000 household expenditure surveys are carried out on a yearly basis and from March 2002 the results are used for annual rebasing.
    Information on pricing of goods, which is collected monthly, is used to measure price changes. Every month about 20,000 prices of more than 4,000 different goods and services are registered. The interviewers of Statistics Iceland collect price information in grocery and clothing stores. Other information is collected via web forms, with telephone interviews with companies as well as via the internet.

    0.7 Legal basis for official statistics

    The index is calculated according to the act on consumer price index no. 12/1995 with changes in act No. 27/2007.

    0.8 Response burden

    Statistics Iceland to a significant extent collects price information through visits to stores and the response burden is little or none for stores. Those who report prices via web forms can do so with very little effort. Searching for prices on websites does hardly ever affect the companies. In cases where prices are collected via phone interviews the interviewees need only to answer few questions. The response burden is therefore not heavy. Individual entities provide other types of information, for example on itemized weights for different types of goods and services. That information is usually fairly extensive and companies may need to go through some effort in providing that.

    0.9 EEA and EU obligations

    The consumer price index is calculated according to Icelandic law (act no. 12/1995 with changes in act No 27/2007). However, the calculation of the index relies to a large extent on methods used in the calculation of the Harmonised Index of Consumer Prices (HICP) calculated for the EEA. The HICP is calculated according to the appropriate EU law.

    1. Contents

    1.1 Description of content

    The consumer price index is a Lowe fixed base index chained with yearly links, in March each year. The index has significant features of a cost of living index as it is corrected for substitution at the elementary level by using the geometric mean. Chain weights are used to correct outlet substitution and quality adjustment used for correcting shopping substitution bias. Owner occupied housing is calculated by a simple user cost model. The COICOP classification system is used for classification of expenditures (Classification Of Individual COnsumption expenditure by Purpose).

    1.2 Statistical concepts

    Theoretically speaking, there are two leading types of index calculations: fixed base indices and cost of living indices.
    In a fixed base price index consumption patterns are kept constant and usually the index is of Lowe type. Special cases of a Lowe index are Laspeyres with an older base or Paasche index with a new base. Superlative indices are symmetric and reflect theoretically a true cost of living index by taking into consideration both old as well as new base.
    Five methods of calculation are used for the base of the consumer price index:
    Relative of geometric mean prices (Jevon) for calculating approx. 56% of the expenditures in the base.
    The weighted relative of geometric mean prices on groceries, extending to approx. 18% of the expenditures.
    A Lowe, or relative of average prices (Duot), covering approx. 21% of the index.
    A superlative index (Fisher), figuring in approx. 1% of the expenditures.
    Indices comprising approx. 4% of the index.

    2. Time

    2.1 Reference periods

    Price collection takes place for at least one week in the middle of a month (from January 2008 onwards). Until year 2007 the prices were collected the two weekdays of the month. The time is prescribed by law pertaining to the consumer price index.

    2.2 Process time

    Processing time is about two weeks every month and the index is published the second last day of the reference month at latest.

    2.3 Punctuality

    The index is always published according to the advance release calendar at 9:00 am. The advance release calendar for each year is published on the web site of Statistics Iceland in October.

    2.4 Frequency of releases

    The index is published every month.

    3. Reliability and security

    3.1 Accuracy and reliability

    A yearly review to the base of the index and annual results from the expenditures survey ensure the accuracy of measurements as well as the high reliability of the index.
    A very extensive price collection every month and a high level of itemization of groups included in the measurement further contribute to accuracy.

    3.2 Sources of errors

    In the calculation of an index various errors can arise:
    Sampling errors (coverage errors, non-response errors): If the goods available or the sampled companies do not reflect the population accurately.
    Measurement errors: Can occur during price collection for example due to inaccurate product descriptions, inaccurate marking in stores and insufficient or wrong answers from respondents.
    Processing errors: Errors can occur during the entering and processing of data.
    Methodological errors: Different methods of calculating indices cause different errors. Superlative indices are symmetric and thus include quantities from two different time periods. The problem is that information about weights in the current period is seldom available until afterwards and it is difficult to calculate them timely. They are different from fixed base indices, which either use older weights (Laspeyres) or new weights (Paasche). Bias in a fixed base index is evaluated from the outcome of a theoretically true cost of living index. Superlative indices, like Fisher, are considered to reflect theoretically true results; however, such indices can rarely be compiled until long after.
    Errors due to substitution: For example if the consumption patterns of households change in such a way that more is bought from outlets where prices are low, but the sample of outlets remains unchanged, so that reduction in prices due to this is not measured in the index, an error can occur due to substitution in household shopping that need to be corrected. Outlet substitution occurs if a good is not available in a store and has to be bought in another outlet, and care is taken of that in the index calculation. If weights for goods remain unchanged but consumption patterns change an error can occur due to item substitution. Such substitution can be at the elementary level and also between basic headings and an example of this is if the price of fish rises much but the price of meat drops. Then household consumption will move to meat from fish (assuming normal price elasticity) but this change to consumption is not measured immediately in the fixed base index. However, a geometric mean corrects for item substitution at the elementary level and with frequent rebasing errors due to substitution in indices are significantly reduced.

    3.3 Measures on confidence limits/accuracy

    Statistics Iceland studied the influence of various expenditure weights on an aggregated level in the consumer price index in the years 2001-2010 and published the results in the Statistical series, Consumer price index 2010-2011, 4 November 2011. The study showed little difference between the published consumer price index and a consumer price index compiled with current weights.

    In the collection and compilation process, the methods used are designed to minimize errors.

    4. Comparison

    4.1 Comparison between periods

    Very good within index base time. Index numbers comparable between bases by chaining. Changes to methodology and significant changes in the classification system can reduce compatibility over a longer period of time. Different methods in calculating owner occupied housing section of the index is an example of such changes.

    4.2 Comparison with other statistics

    Comparisons are made when possible. Results from price surveys which are conducted regularly are compared with results from the index calculation. There are difficulties in using other sources such as import or export unit prices because of differences in classifications and the fact how exchange rates reflects in prices in the economy. Other sources such as the PPI can not yet be used because of insufficient level of detail. However, collaboration between countries on the calculation of a HICP makes it possible to compare inflation between countries.

    4.3 Coherence between preliminary and final statistics

    Preliminary statistics are not published.

    5. Access to information

    5.1 Forms of dissemination

    • Website of Statistics Iceland
    • Press releases disseminated by e-mail
    • The Statistical series
    • Statistical Yearbook of Iceland.
    • Telephone answearing services

    5.2 Basic data; storage and usability

    Basic data is stored by Statistic Iceland and is not accessible anyone other than employees of the index department.

    5.3 Reports

    Reports and papers by the staff are published on the website under the heading publications. Special issues on the consumer price index have been published in the Statistical Series. There the rebasing process has been explained and also the development of the CPI and its components have been described. Information is also found in the Statistical Yearbook.

    5.4 Other information

    Further information about the consumer price index is provided by
    Heiðrún Erika Guðmundsdóttir
    telephone: 528 1201

    © Hagstofa �slands, �ann 20-12-2013