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Consumer Price Index & Inflation

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Prices and Wages Division

Department of Census and Statistics

Ministry of Economic Reforms and Public Distribution

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Outline

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• What is a Consumer Price Index (CPI)?
• Purpose of a Consumer Price Index
• Historical Background of CPI
• Current Consumer Price Indices of Sri Lanka
• Geographical Coverage of CPI
• Source of weights for the CPI
• Classification: COICOP
• Consumer Price Index; Special Features
• Reference periods of the CPI
• Price collection for the CPI
• Computation of Indices
• Index Calculation Methodology
• Inflation (What is Inflation?, Types of Inflation, Measurement of Inflation)

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What is a Consumer Price Index (CPI)?�

A Consumer Price Index measures changes in the price level of a market basket of consumer goods and services purchased by households in a particular period of time.

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Purpose of a Consumer Price Index

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• It is an indicator to measure the changes in the general level of consumer prices and used as one of the key indicators of inflation.
• Consumer Price Index is also used for socio-economic analysis and policy purposes, mainly in the determination of monetary and income policies.
• Use for formulation of policy for the determination and evaluation of wages and other monetary incomes.
• Consumer price index is also used to deflate the current values in National Accounts to obtain real values and therefore, a major determinant of the GDP deflator.

SLCPI

1952=100

1991

1983

1978

1972

1960

2002 = 100

None of these were not accepted as official publication

OLD CCPI

Historical Background of the CPI

2001

GCPI

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2006/7 = 100

2013 = 100

NCPI

CCPI

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Current Consumer Price Indices of Sri Lanka

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• National Consumer Price Index (NCPI) (Base 2013=100)

is released monthly with time lag of 21 days

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• Colombo Consumer Price Index (CCPI) (Base 2013=100)

is released last working day of each month

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Geographical Coverage of CPI

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Geographical Coverage of CCPI: Urban areas of Colombo district

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14 selected centers

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Pettah, Maradana, Wellawatta, Dematagoda, Grandpass, Borella, Kirulapone, Dehiwala, Kotte, Nugegoda, Kolonnawa, Rathmalana, Narahenpita and Rathmalana dedicated economic centers.

(including Lak Sathosa and a supermarket)

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Source of weights for the CPI

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• Expenditure weights were obtained using data on HH expenditure canvassed in the survey during the 12 month period July 2012 to June 2013.

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Classification of Individual Consumption according to Purpose (COICOP) is a Reference Classification published by the United Nations Statistics Division is a Reference Classification published by the United Nations Statistics Division that divides the purpose of individual consumption expenditures incurred by three institutional sectors, namely

Households,

Non-profit institutions serving households

General government.

Classification: COICOP

(Classification of Individual Consumption According to Purpose)

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• 01-12 - Individual consumption expenditure of households
• 01 - Food and non-alcoholic beverages
• 02 - Alcoholic beverages, tobacco and narcotics
• 03 - Clothing and footwear
• 04 - Housing, water, electricity, gas and other fuels
• 05 - Furnishings, household equipment and routine household maintenance
• 06 - Health
• 07 - Transport
• 08 - Communication
• 09 - Recreation and culture
• 10 - Education
• 11 - Restaurants and hotels
• 12 - Miscellaneous goods and services
• 13 - Individual consumption expenditure of non-profit institutions serving households

(NPISHs)

• 14 - Individual consumption expenditure of general government

COICOP

(Classification of Individual Consumption According to Purpose) contd…

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Division:01-Food and non-alcoholic beverages

Group:01.1-Food

Class:01.1.1- Bread and cereals

Breakdown:

This Class is divided into the following Sub classes:

01.1.1.1 – Rice

01.1.1.2 – Flour

01.1.1.3 - Cereals

01.1.1.4 – Bread and Bakery Products

01.1.1.5 – Pasta Products

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01.1.1.1 –Rice

01.1.1.1.1- Rice - (Kekulu white)

01.1.1.1.2- Rice - (Kekulu - red)

01.1.1.1.3- Rice - (Samba)

01.1.1.1.4- Rice - (Nadu-White)

01.1.1.1.5- Rice - (Nadu-Red)

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COICOP

(Classification of Individual Consumption According to Purpose) contd…

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Consumer Price Index; Special Features

Comparison of key characteristics between National Consumer Price Index (Base 2013 = 100) and the Colombo Consumer Price Index (Base 2013=100)

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Reference periods of the CPI

• Weight reference period : 2012/13 (July 2012 to June 2013)

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• Price reference period : 2013 (January – December)

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• Index reference period :2013

(The index reference refers to that period where the index

equals 100)

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Price collection for the CPI

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Price data is collected only from the

• selected outlets
• for a given detailed specifications
• during a selected period

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Price collection for the CPI (Selection of outlets)�

• Department uses purposive sampling method in order to choose the sampling units.

• Thus, the outlets which have more consumers and at the same time, the outlets available with good quality goods are considered as the sampling units.

• Three price quotations are collected for each of the item

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Price collection for the CPI (Specifications)

Item : Samba No. 1

Specification:

Price for : 1 Kilogram

Packaging : Loose

Type : Medium grain, Not Polished, Well steamed, Removed stones and sand from rice

Color of Variety : White

Share of broken rice : Very low

Brand : Brand less

Origin :Local

Item : Nadu

Specification:

Price for : 1 Kilogram

Packaging : Loose

Type : Medium grain, Parboiled, Removed stones and sand from rice

Color of Variety : White /Red

Share of broken rice : Very low

Brand : Brand less

Origin : Local

Item: Potatoes

Specification:

Price for :1 Kilogram

Packaging : Loose

Type : Fresh Potatoes

Quality :Good quality, intact (unbroken, unmarked) skin

Origin :Local/Imported

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Computation of Indices �

Two-stage or Modified Laspeyres formula (short-term price relative formulation)

will be used to calculate the index.

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_{= Index for the current month}

_{= Is the price for i}^th _{item in current period t}

_{= Is the price for i}^th _{item in previous period t-1}

_{= Previous periods’ updated weight}

The Geometric Average of price quotations is used in the computation of the index

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The CPI is one of the most commonly used statistics for identifying periods of inflation or deflation.

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Index Calculation Methodology

Work sheet

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What is Inflation?

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Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services.

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On the contrary a drop in CPI in the short term can be interpreted as a period of deflation where the buying power of the consumers increases.

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Types of Inflation compiled by the DCS

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• Headline Inflation

Headline inflation is the raw inflation figure reported through

the Consumer Price Index (CPI) 

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• Core Inflation

The core inflation, which reflects the underlying inflation by

excluding volatile items of food, energy and transport.

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The measurement of Inflation

Year on Year (Point to Point)

The percentage change in the CPI during the last 12 months.

(The percentage change in the current month CPI over same month

CPI of last year)

Eg.

Inflation, February 2022 = CCPI February2022-CCPI February2021 *100

CCPI February 2021

= 160.1-139.1 *100

139.1

= 15.1%

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Movements of the CCPI (Base 2013 = 100), CCPI(Core), Year on Year Headline and Year on Year Core Inflation

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CCPIInfographic

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Thank you