Abstract

The Consumer Price Index Manual: Concepts and Methods contains comprehensive information and explanations on compiling a consumer price index (CPI). The Manual provides an overview of the methods and practices national statistical offices (NSOs) should consider when making decisions on how to deal with the various problems in the compilation of a CPI. The chapters cover many topics. They elaborate on the different practices currently in use, propose alternatives whenever possible, and discuss the advantages and disadvantages of each alternative. The primary purpose of the Manual is to assist countries in producing CPIs that reflect internationally recommended methods and practices.

CONSUMER PRICE INDEX MANUAL

Concepts and Methods | 2020

International Monetary Fund | International Labour Organization Statistical Office of the European Union (Eurostat) United Nations Economic Commission for Europe

Organisation for Economic Co-operation and Development | The World Bank

© 2020 International Labour Organization/International Monetary Fund/Organisation for Economic Co-operation and Development/European Union/United Nations/The World Bank

Cataloging-in-Publication Data

IMF Library

Names: International Labour Office. | International Monetary Fund. | Organisation for Economic Co-operation and Development. | European Union. | United Nations. | World Bank.

Title: Consumer price index manual : concepts and methods.

Description: Washington, DC : International Monetary Fund, [2020]. | Includes bibliographical references.

Identifiers: ISBN 978-1-48435-484-1 (Paper)

978-1-51354-299-7 (ePub)

978-1-51354-298-0 (PDF)

Subjects: LCSH: Consumer price indexes—Methodology. | Price indexes.

Classification: LCC HB225.C66 2020

Eurostat Catalogue number: OA-04-20-634-EN-C (Paper)

Eurostat Catalogue number: OA-04-20-634-EN-N (PDF)

Disclaimer: The views expressed in this book belong solely to the authors. Nothing contained in this book should be reported as representing the views of the organizations, member governments, or any other entity mentioned herein.

Please send orders to:

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P.O. Box 92780, Washington, D.C. 20090, U.S.A.

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Contents

  • Foreword

  • Preface

  • Acknowledgments

  • Acronyms and Abbreviations

  • 1 Introduction, Overview, and Basic Steps for the Consumer Price Index Development

    • Introduction

    • Developing the Consumer Price Index

    • Overview of the Consumer Price Index Uses and Needs

    • Overview of the Consumer Price Index Concepts

    • Deciding on the Index Coverage and Classification Structure

    • Deriving the Weighting Pattern

    • Designing the Sample

    • Collecting and Editing the Prices

    • Maintaining and Updating the Sample

    • Missing Products and Adjusting for Changes in Quality

    • New Products

    • Calculating the Consumer Price Index

    • Updating the Weights and Linking of Series

    • Organization and Management

    • Publication and Dissemination

    • Special Cases

    • Errors and Biases

    • Annex 1.1 Formula Notations

  • 2 Uses, Concepts, Scope, and Classifications of Consumer Price Indices

    • Introduction

    • Consumer Price Index Uses

    • Concepts and Scope of the Consumer Price Index

    • Consumer Price Index Classifications

    • Key Recommendations

    • Annex 2.1 Use of Price Statistics in the National Accounts—Supply and Use

  • 3 Expenditure Weights and Their Sources

    • Introduction

    • Conceptual Basis of the Weights

    • The Weighting Structure of the Consumer Price Index

    • Data Sources

    • Deriving the Weights in Practice

    • Weight Reference Period

    • Frequency of Weight Updates

    • Items Requiring Special Treatment

    • Key Recommendations

  • 4 Sampling

    • Introduction

    • Sampling Techniques

    • Sampling Stages in a Consumer Price Index

    • Central Price Collection

    • Sample Maintenance

    • Variance Estimation and Optimal Allocation

    • Key Recommendations

  • 5 Price Collection and Validation

    • Introduction

    • Organization Options

    • The Principles of Price Collection

    • The Practical Aspects of Managing Price Collection

    • Data Validation and Editing

    • Price Collector Training

    • Documentation: Work Instructions

    • Disaster Recovery

    • Other Methods of Price Collection

    • Key Recommendations

    • Annex 51 Consumer Price Index Price Collection Procedures

    • Annex 52 Consumer Price Index—Example of a Price Collection Form

    • Annex 53 Consumer Price Index—Automated Data Checking

    • Annex 54 Documentation Control Template

    • Annex 55 The Calculation of Average Product Price When Combining Prices from Different Price Collection Methods and for Different Price Collection Frequencies

    • Annex 56 Web Scraping

  • 6 Temporarily and Permanently Missing Prices and Quality Change

    • Introduction

    • Background

    • Potential Errors in the Matched-Model Method

    • Useful Concepts for the Treatment of Missing Prices

    • The Treatment of Temporarily and Permanently Missing Variety Prices

    • The Treatment of Temporarily Missing Price Observations

    • The Nature of Quality Change

    • Permanently Missing Price Observations

    • Implicit Methods of Quality Adjustment

    • Explicit Methods of Quality Adjustment

    • High Technology and Other Sectors with a Rapid Turnover of Models

    • Key Recommendations

    • Annex 61 Overall Mean (or Targeted) Imputation

    • Annex 62 Quality Adjustment Using a Replacement and Price Overlap

    • Annex 63 The Nature and Extent of the Index Number Bias If Only Matched Varieties Are Used

  • 7 Maintaining the Sample

    • Introduction

    • Sample Maintenance and Matching

    • Incorporation of New Products

    • Information Requirements Maintaining the Sample

    • Key Recommendations

  • 8 Calculating Consumer Price Indices in Practice

    • Introduction

    • The Calculation of Price Indices for Elementary Aggregates

    • The Calculation of Higher-Level Indices

    • Key Recommendations

  • 9 Updating CPI Weights and Linking New to Previous CPI Series

    • Introduction

    • Calculating a Chain Index

    • Updating Weights for Price Change: Pros and Cons

    • Detailed Methods for Updating Weights

    • Linking the Previous CPI to the New Price Index Reference Period

    • Frequency of Weight Updates

    • Annual Updating and Linking

    • Introducing New Classification Systems

    • Expanding CPI Geographic Coverage

    • Key Recommendations

  • 10 Scanner Data

    • Introduction

    • Practical Considerations

    • Multilateral Price Index Methods

  • 11 Selected Special Cases

    • Introduction

    • Seasonal Products

    • Internet Purchases

    • Housing

    • Second-Hand Goods

    • Own-Account Production

    • Tariffs

    • Telecommunications

    • Transport Services

    • Health, Education, and Social Protection Services

    • Financial Services

    • Annex 111 Example of Price Collection Checklist for Second-Hand Clothing

    • Annex 112 Example Price Collection Letter to Retailer

    • Annex 113 Calculation of a Price Index for a Deposit Product

  • 12 Errors and Bias

    • Introduction

    • Types of Errors

    • Measuring Error

    • Types of Bias

    • Key Recommendations

  • 13 Data Quality Management and Reporting

    • Introduction

    • Data Quality Assessment Framework (DQAF) for a Consumer Price Index

    • Quality Management

    • Quality Management Systems

    • Prototype of a Quality Management System

    • Documentation

    • Internal and External Audits of Production Processes

    • Quality Reporting and Improving the Consumer Price Index: Frameworks

    • Work Programs: Programming, Planning, and Reporting

    • Annex 13.1 Data Quality Assessment Framework (DQAF) for the Consumer Price Index

    • Annex 13.2 Documentation Control Template

    • Annex 13.3 Pro Forma for an Audit Schedule

    • Annex 13.4 Audit Report Template

    • Annex 13.5 Model Quality Report Document for the Consumer Price Index

  • 14 Publication, Dissemination, and User Relations

    • Introduction

    • Time-Series Presentation of Level and Change

    • Seasonal Adjustment and Smoothing of the Index

    • Analysis of Contributions to Change

    • Economic Commentary and Interpretation of the Index

    • Presentation of Related or Alternative Measures

    • Press Release, Bulletin, and Methodological Statement

    • International Standards Concerning the Dissemination of Consumer Price Indices

    • Timing of Dissemination of the Consumer Price Index

    • Timeliness of Release versus Data Accuracy

    • Access to Data

    • Confidentiality

    • Presentation of Methodology

    • Explaining Index Quality

    • User Consultation

    • Key Recommendations

  • A Glossary of Main Terms

  • Appendix 1 The Harmonised Index of Consumer Prices (European Union)

  • Appendix 2 Classification of Individual Consumption According to Purpose 1999 (COICOP1999)

  • Appendix 3 Classification of Individual Consumption According to Purpose 2018 (COICOP2018)

  • Appendix 4 Resolution Concerning Consumer Price Indices Adopted by the Seventeenth International Conference of Labour Statisticians, 2003

  • Appendix 5 Spatial Comparisons of Consumer Prices, Purchasing Power Parities, and the International Comparison Program

  • Appendix 6 Some Basic Index Number Formulas and Terminology

  • Appendix 7 Consumer Price Index Research Agenda

  • Bibliography

  • Index

  • Box

  • 1.1 Classification of Individual Consumption According to Purpose (COICOP)

  • Figures

  • 5.1 Price Changes in Plot Chart during Sales Season

  • A5.1 Planning and Organizing Price Collection

  • A5.2 Price Collection Form

  • A5.3 Documentation Control Template

  • 6.1 Quality Adjustments for Different Sized Varieties

  • 6.2 Scatter Diagram of Price against Capacity: Washing Machine Data

  • 6.3 Guide to Treatment of Missing Prices

  • A6.2 Matched-Model Price Index Bias and Pricing Strategies

  • 8.1 Illustrative Aggregation Structure of a CPI

  • 9.1 The CPI Life Cycle

  • 11.1 The Acquisitions Approach for Owner-Occupied Housing

  • 11.2 Loose Specification Sampling and Tight Specification Pricing

  • 11A.1 Price Collection Checklist for Second-Hand Clothing

  • 11.A.2 Price Collection Letter to Retailer

  • 13.1 An Example of a Quality Management System for CPI Data Collection

  • 13.2 Documentation

  • 13A.1 Documentation Control Template

  • 13A.2 Pro Forma for an Audit Schedule

  • 13A.3 Audit Report Template

  • 13A.4 Model Quality Report Document for the CPI

  • 14.1 Example of an Illustrative CPI Press Release

  • 14.2 Model Note on Methodology—To Be Included in Press Releases on CPI or on the Official Website

  • Tables

  • 3.1 Example of Plutocratic versus Democratic Weights

  • 3.2 Deriving Expenditure Weights by Region

  • 3.3 Deriving Expenditure Weights by Region and by Outlet Type

  • 3.4 Treatment of Products for Which No Prices Are Collected

  • 3.5 Estimation of Net Expenditure Weights

  • 4.1 Systematic Sample of 3 out of 10 Outlets, Based on PPS Sampling

  • 4.2 Cutoff Sample of 3 out of 10 Outlets

  • 4.3 Stratification by Region, Outlet Type, and Product Type

  • 4.4 Different Allocation Strategies

  • 5.1 Determining Purchaser Price When Bargaining Takes Place

  • 5.2 Selected Values of C and the Proportion of Observations Flagged

  • A5.1 Price Relatives Showing Movement from Previous Period (Example 1)

  • A5.2 Parameters and Derived Limits (Example 1)

  • A5.3 Price Relatives Showing Movement from Previous Period (Example 2)

  • A5.4 Parameters and Derived Limits (Example 2)

  • A5.5 Price Relatives Showing Movement from Previous Period (Example 3)

  • A5.6 Parameters and Derived Limits (Example 3)

  • A5.7 Combining Prices from Different Price Collection Methods and for Different Price Collection Frequencies

  • A5.8 Web Scraping—Typical Data Structure

  • 6.1 Example of a Replacement Variety with Overlap

  • 6.2 Illustrative Variety Codes for Price Collector for Missing Values

  • 6.3 Temporarily Missing Price Observations and Imputed Prices

  • 6.4 Overall Mean and Targeted Mean Imputations

  • 6.5A Illustration of Treatment of Comparable Replacements

  • 6.5B Illustration of Treatment Using the Overlap Method, Noncomparable Replacements: Actual Preceding Period Price

  • 6.5C Illustration of Treatment Using the Overlap Method, Noncomparable Replacements: Imputed Succeeding Period Price

  • 6.6 Introducing a Noncomparable Replacement via an Overlap

  • 6.6A Introducing a Noncomparable Replacement to Illustrate Link-to-Show-No-Change

  • 6.7 Example of Size, Price, and Unit Price of Bags of Flour

  • 6.8 Estimated (Linear) Equation of Price against Capacity: Washing Machine Data

  • 6.9 Illustrative Hedonic Regression Estimates for Washing Machines

  • 6.10A Hedonic Regression Imputation of New Variety’s Price

  • 6.10B Hedonic Regression Imputation of Old Variety’s Price

  • 6.10C Hedonic Regression Imputation of New Variety’s Price

  • 6.11 Illustration of Rapid Model Turnover

  • 6.12 Equivalences of Hedonic Approaches

  • 6.13 Difference between Hedonic and Matched Indices

  • A6.1 Example—Bias from Implicit Quality Adjustment When the (Mean) Price Change of Quality-Adjusted New Varieties Compared with the Varieties They Are Replacing Is Assumed Not to Change (r2 = 1.00)

  • 7.1 Example of Sample Augmentation

  • 7.2 Example of Introducing a New Elementary Aggregate

  • 7.3 Example of Introducing New Weights for Higher-Level Aggregates

  • 8.1 Jevons and Dutot Price Indices Using Averages of Prices

  • 8.2 Jevons and Carli Price Indices Using Averages of Long-Term Price Relatives

  • 8.3 Jevons and Carli Price Indices Using Chained Short-Term Price Relatives

  • 8.4A Jevons and Dutot Elementary Price Indices Using Averages with Missing Prices

  • 8.4B Jevons and Carli Elementary Price Indices Using Relatives with Missing Prices

  • 8.5A Jevons and Dutot Elementary Price Indices Using Averages with Imputed Prices

  • 8.5B Jevons and Dutot Elementary Price Indices Using Relatives with Imputed Prices

  • 8.6 Replacing Varieties with No Overlapping Prices: Jevons and Carli Price Indices

  • 8.7 Replacing Varieties with No Overlapping Prices: Dutot Index

  • 8.8 Disappearing and Replacement Varieties with Overlapping Prices

  • 8.9 Calculation of a Weighted Elementary Index

  • 8.10 Aggregation of Elementary Price Indices

  • 8.11 Aggregation of Elementary Price Indices (Arithmetic) across Locations

  • 9.1 Calculation of a Chain Index

  • 9.2 Updating Weights for Price Change from Weight Reference Period

  • 9.3 Updated CPI with the Same Weight and Price Reference Periods

  • 9.4 Updated CPI with a New Price Reference Period

  • 9.5 Linking CPI Series Using a Single Period Overlap on a New Index Reference Period

  • 9.6 Linking Old and New Index Series to a Previous Annual Average

  • 9.7 Linking New Series to an Old Index Reference Period

  • 9.8 Aggregating New CPI Series Using an Annual Period Overlap

  • 9.9 Partial Weight Updates at the COICOP Class Level

  • 9.10 Linking Annual Indices for Multiple Periods with Chained Linking Factors

  • 9.11 Decomposition of Index Changes

  • 10.1 A Numerical Example of Chain Drift

  • 10.2 Movement Splice Linking with Rolling Window of 13 Months

  • 11.1 Short-Term Price Relatives Based on Monthly Indices for Four Selected Elementary Aggregates

  • 11.2 Monthly Price Indices Using Imputed Prices for Missing Values of Winter and Summer Nightwear

  • 11.3 Calculation of a Mortgage Interest Charges Series

  • 11.4 Relationship between the Choice of Owner-Occupied Housing (OOH) Approach and CPI Purposes

  • 11.5 Matched Models: Landline Telephones

  • 11.6 Consumer Profiles: Mobile Telephones

  • 11.7 Bus Fares: Old and New Tariffs

  • 11.8 Internet Services

  • 11.9 Changes in the Tariff for Internet Prices

  • 11.10 An Illustrative Index Structure for Telecommunication Services (representative item approach)

  • 11.11 Examples of Specifications of Telecommunication Services

  • 11.12 Example of a User Profile for Mobile Phone Services

  • 11.13 CPI Weights: Medical Insurance and Medical Care Elementary Aggregates

  • 11.14 The Effects of a Subsidy and Tax Credit on a CPI

  • 11.15 Illustration of the Impact of Taxes on Measures of Insurance Services ($)

  • 11A.1 Calculation of a Price Index for a Deposit Product: Base Period Sample Account

  • 11A.2 Calculation of a Price Index for a Deposit Product: Fee Schedule

  • 11A.3 Calculation of a Price Index for a Deposit Product: Bank Accounts Debit Tax

  • 11A.4 Calculation of a Price Index for a Deposit Product: Financial Institutions Duty (percent)

  • 11A.5 Calculation of a Price Index for a Deposit Product: Interest Data

  • 11A.6 Calculation of a Price Index for a Deposit Product: CPI Data

  • 11A.7 Calculation of a Price Index for a Deposit Product: Projected Current Period Sample Account

  • 11A.8 Calculation of a Price Index for a Deposit Product: Indices for Current Accounts

  • 12.1 A Taxonomy of Errors in a CPI

Foreword

The Consumer Price Index Manual: Concepts and Methods contains comprehensive information and explanations on compiling a consumer price index (CPI). The Manual provides an overview of the methods and practices national statistical offices (NSOs) should consider when making decisions on how to deal with the various problems in the compilation of a CPI.

The chapters cover many topics. They elaborate on the different practices currently in use, propose alternatives whenever possible, and discuss the advantages and disadvantages of each alternative. Given the comprehensive nature of this Manual, it will satisfy the needs of many users.

This publication on the practice of compiling CPIs is an update of Consumer Price Index Manual: Theory and Practice, published in 2004. Through the mechanism of the Intersecretariat Working Group on Price Statistics (IWGPS), the update has been managed by the International Monetary Fund (IMF) and jointly published by the organizations of the IWGPS: the Statistical Office of the European Union (Eurostat), the International Labour Organization (ILO), the IMF, the Organisation for Economic Co-operation and Development (OECD), the United Nations Economic Commission for Europe (UNECE), and the World Bank.

The primary purpose of the Manual is to assist countries in producing CPIs that reflect internationally recommended methods and practices. It draws upon a wide range of experience and expertise to describe practical and suitable methods to guide countries in their efforts to improve the quality and international comparability of their CPIs and to meet user needs. The Manual is intended for statistical offices (or other compiling agencies) as a reference to compile the CPI and for training purposes. CPI users, such as employers, workers, policymakers, and researchers, are also targeted. The Manual will not only inform them about the different methods that are employed in collecting data and compiling such indices but will also provide them with information on the limitations of CPIs, so that the results may be interpreted correctly.

The 2004 Manual included extensive theoretical chapters. The theoretical chapters are omitted in the updated version of the Manual, which focuses on providing guidance on best practices for CPI compilation concepts and methods. A companion publication will be released separately that focuses on the theoretical foundations of CPIs. This publication, labeled Consumer Price Index Theory, provides an overview of the conceptual and theoretical issues that drive the methods and practices.

Mariana Kotzeva

Director General

Eurostat

Rafael Diez de Medina

Chief Statistician/Director, Department of Statistics

International Labour Office

Louis Marc Ducharme Chief Statistician and Data Officer, Director, Statistics Department

International Monetary Fund

Paul Schreyer Chief Statistician, Director, Statistics and Data Directorate Organisation for Economic Co-operation and Development

Lidia Bratanova

Director, Statistical Division

United Nations Economic Commission for Europe

Haishan Fu

Director, Development Data Group

World Bank Group

Preface

The Consumer Price Index Manual: Concepts and Methods, herewith referred to simply as the Manual, is an update of the 2004 publication Consumer Price Index Manual: Theory and Practice. Since 2004, methods and best practices, as well as user needs, have continued to evolve. Countries have expressed the need for a manual that better reflects current best practices and includes more practical compilation advice. The Manual was prepared under the auspices of the Intersecretariat Working Group on Price Statistics (IWGPS), which consists of six organizations: the Statistical Office of the European Union (Eurostat), the International Labour Organization (ILO), the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations Economic Commission for Europe (UNECE), and the World Bank. The Manual is published jointly by the six organizations.

The IWGPS, together with experts from a number of national statistical offices (NSOs) and academia, has collaborated since 2015 on updating this Manual. The sponsoring organizations endorse the principles and recommendations contained in it as good practice for statistical agencies in compiling their consumer price indices (CPIs). Because of practical and resource constraints, some of the current recommendations may not be immediately attainable by all NSOs, and they should therefore serve as guidelines or targets for agencies as they revise their CPIs and improve their CPI programs. There are not always clear-cut solutions to specific conceptual and practical problems such as sample design, choice of index formula, adjustment of prices for quality changes, and the treatment of new products. NSOs must therefore rely on the underlying economic and statistical principles laid out in this Manual to arrive at practical solutions.

The Consumer Price Index

The CPI is an index that measures the rate at which the prices of consumption goods and services are changing from one period to another. The prices are collected from shops or other retail outlets. The usual method of calculation is to take an average of the period-to-period price changes for the different products, using as weights the average amounts that households spend on them. CPIs are official statistics that are usually produced by NSOs, ministries of labor, or central banks.1 They are published as quickly as possible, generally within four weeks after the reference period.

The Manual is intended for the benefit of agencies that compile CPIs, as well as users of CPI data. It explains in some detail the methods that are recommended for use to calculate a CPI. A separate companion publication, Consumer Price Index Theory, explains the underlying economic and statistical theory on which the methods are based.

A CPI is a measure of price changes of the goods and services purchased by households in their role as consumers. It is also widely used as a proxy measure of inflation for the economy as a whole, partly because of the frequency and timeliness with which it is produced. It has become a key statistic for purposes of economic policy-making, especially monetary policy. It is often specified in legislation and in a wide variety of contracts as the appropriate measure for adjusting payments (such as wages, rents, interest, social security, other benefits, and pensions) for the effects of inflation. It can therefore have substantial and wide-ranging financial implications for governments and businesses, as well as for households.

This Manual provides guidelines for NSOs or other agencies responsible for constructing a CPI, bearing in mind that the resources available for this purpose are limited. Calculating a CPI cannot be reduced to a simple set of rules or standard set of procedures that can be mechanically followed in all circumstances. While there are certain general principles that may be universally applicable, the procedures followed in practice, whether they concern the collection or processing of the prices or the methods of aggregation, must take account of particular circumstances. These include the main use of the index, the nature of the markets and pricing practices within the country, and the resources available to the national statistical office (NSO). NSOs have to make choices. The Manual explains the underlying economic and statistical concepts and principles needed to enable NSOs to make their choices in efficient and cost-effective ways and to be aware of the full implications of their choices.

The Manual draws upon the experience of many NSOs throughout the world. The procedures they use are not static but continue to evolve and improve in response to several factors. First, research continually refines and strengthens the economic and statistical theory underpinning CPIs. For example, clearer insights have recently been obtained on the relative strengths and weaknesses of the various formulas and methods used to process the basic price data collected for CPI purposes. Second, recent advances in information and communications technology, such as the availability and the technical capabilities to make effective use of large-scale administrative data sets, have affected CPI methods. Both of these theoretical and data developments can impinge on all the stages in compiling a CPI. New technology can affect the methods used to collect prices and transmit them to the NSO. It can also improve the processing and checking, including the methods used to adjust prices for changes in the quality of the goods and services covered. Finally, improved formulae help in calculating more accurate and reliable higher-level indices, including the overall CPI itself.

International Standards for Consumer Price Indices

The objectives of the international standards for CPI compilation are to provide guidelines on best practices that can be used by countries when developing or revising a CPI and to promote the quality and international comparability of national CPIs.

In many countries, CPIs were first compiled mainly to be able to adjust wages to compensate for the loss of purchasing power caused by inflation. Consequently, the responsibility for compiling CPIs was often entrusted to ministries, or departments, of labor. The International Conference of Labour Statisticians (ICLS), convened by the Governing Body of the ILO, therefore provided the natural forum in which to discuss CPI methodology and develop guidelines.

The first international standards for CPIs were promulgated in 1925 by the Second ICLS. The first set of standards referred to “cost of living” indices rather than CPIs. A distinction is now drawn between two different types of indices. A CPI can be defined simply as measuring the change in the cost of purchasing a given “basket” of consumption goods and services, whereas a cost of living index is defined as measuring the change in the cost of maintaining a given standard of living, or level of utility. For this reason, the Tenth ICLS in 1962 decided to adopt the more general term “consumer price index,” which should be understood to embrace both concepts. There need not be a conflict between the two. As explained in the Manual, the best practice methods are likely to be very similar, whichever approach is adopted.

The international standards for calculating CPIs have been revised four times, in 1947, 1962, 1987, and 2003 in the form of resolutions adopted by the ICLS. The 1987 standards on CPI were followed by a manual on methods (Turvey and others 1989), which provided guidance to countries on the practical application of the 1987 standards. The 1989 manual on methods was revised, expanded, and published in 2004.

The 51st Session of the United Nations Statistical Commission endorsed this Manual as an international statistical standard on March 4, 2020 and urged all countries to use this Manual in the compilation of their national CPIs.

The Background to the Present Update

Since 2004, substantial progress has been made in developing new data sources, price collection methods, and related index calculation methods. This update incorporates these developments and reflects experience gained improving CPI compilation methods. Finally, evolving user needs and the need for greater international comparability contributed to the necessity for updating the 2004 Manual.

In response to the various developments in CPI compilation methods and the emergence of new data sources, the need to update the 2004 Manual was recognized and agreed in 2014. A formal recommendation to revise the manual was made at the meeting of the UNECE Expert Group on Consumer Price Indices, Geneva, May 2014, jointly organized with the ILO. The participants of this meeting noted a need for clearer, more prescriptive recommendations where research, methodological development, and practical experience support such recommendations and guidelines.

Following the 2014 meeting in Geneva, the IWGPS endorsed the need to update the Manual and selected the IMF as lead agency to manage the update. The overall objective of this update was to develop a more concise manual that provided more practical advice wherever possible. The updated material takes into account experiences gained on the applicability and usefulness of the 2004 Manual; incorporates relevant developments in methods and practices as well as theory and research over the last decade; updates material on data sources, data collection methods, and related calculation methods to reflect developments since 2004; reflects recent developments in user needs; and harmonizes the CPI concepts in line with the System of National Accounts 2008.

The Organization of the Update

The six international organizations listed at the beginning of this preface, concerned with the measurement of inflation, have collaborated on the update of this Manual. They have provided, and continue to provide, technical assistance on CPIs to countries at all levels of development. They joined forces to establish the IWGPS to develop international standards and recommendations on price statistics, document best practice guidelines, and support their implementation.

The responsibilities of the IMF, as lead agency within the IWGPS for this update, were to:

  • Appoint the various experts on price indices who participated in the updating process, as members of the Technical Expert Group (TEG/CPI), providing substantive advice on the content of the Manual and serving as authors

  • Provide the financial and other resources needed

  • Arrange meetings of the TEG/CPI, prepare the agendas, and write the reports of the meetings

  • Arrange for the publication and dissemination of the Manual

The drafting and updating have entailed meetings and discussions over a five-year period, during which CPI experts from NSOs, international and regional organizations, and academia have participated. The updated Manual owes much to their collective advice and expertise.

The experts participating in the TEG/CPI were invited in their personal capacity as experts and not as representatives, or delegates, of the NSOs or other agencies in which they might be employed. Participants were able to give their expert opinions without in any way committing the offices from which they came.

The update of the Manual involved multiple activities:

  • The development of the Manual outline and the recruitment of experts to draft the various chapters

  • The review of the draft chapters by the members of the TEG/CPI, the IWGPS, other experts, and CPI compilers

  • The posting of the draft chapters on a special website for comment by CPI compilers and data users

  • Discussions by the TEG-CPI to finalize each of the chapters

  • Agreement by the IWGPS on the adequacy of the content and quality of the chapters for having a global consultation of countries’ views

  • Formal global consultation by the United Nations Statistics Division

  • Inclusion of comments and suggestions from the global consultation

  • Final copyediting of the whole Manual

  • Endorsement by the 51st Session of the United Nations Statistical Commission

Electronic versions of the Manual are available on the IMF website (www.imf.org) and the IMF eLibrary (www.elibrary.imf.org). The IWGPS will issue guidance notes that will amend and update specific chapters to address and clarify particular issues as needed. This is especially true for emerging discussions and recommendations to be made by international groups reviewing the CPI, such as the ICLS, the United Nations City Group on Price Indices (the “Ottawa Group”), and the UNECE Expert Group on Consumer Price Indices.

Comments and suggestions on the Manual are welcomed by the IWGPS and should be sent to the International Monetary Fund (email: STARECPIM@imf.org). They will be considered for any future revisions.

1

For simplicity, the Manual refers in general to NSOs as the statistical agencies responsible for compiling the CPI.

Acknowledgments

The organizations of the Intersecretariat Working Group on Price Statistics (IWGPS) wish to thank all those involved in the drafting and production of the Consumer Price Index Manual: Concepts and Methods. Particular thanks go to Brian Graf, the editor, and Margarida Martins, who coordinated work on the Manual. Their efforts greatly enhanced the quality of the Manual. Nada Hamadeh, IWGPS Chair, also deserves special thanks for her efforts to ensure a timely completion of this update.

The current Manual represents an update of the 2004 Manual published by the International Labour Organization (ILO). Individual authors were recruited to review and update each chapter. Some chapters required extensive updating and rewriting, while others needed only minimal updating from the 2004 version of the manual. Two new chapters have been added on scanner data and updating Consumer Price Index (CPI) weights.

The IWGPS established the Technical Expert Group on the CPI (TEG-CPI) for updating the Manual. Members of the TEG-CPI were as follows: Maria Mantcheva, IMF (Retired), Co-chair of the TEG-CPI; Brian Graf, IMF, Co-chair of the TEG-CPI and editor; Margarida Martins, IMF, Secretariat; Badria Al-Aadi, NCSI (Oman); Paul Armknecht, IMF (Retired) and U.S. Bureau of Labor Statistics (Retired); W. Erwin Diewert, University of British Columbia (Canada); David Fenwick, UK ONS (Retired); Claude Lamboray, Eurostat and STATEC (Luxembourg); Yunita Rusanti, BPS-Statistics Indonesia; Raphael Posse, INEGI (Mexico); Mick Silver, IMF (Retired); Valentina Stoevska, ILO; and Jan Walschots, Statistics Netherlands (Retired).

The Manual benefited from the experience of several experts responsible for updating the individual chapters. The authors included: Paul Armknecht, IMF (Retired); Corinne Becker, Swiss FSO; David Fenwick, UK ONS (Retired); Jan de Haan, Statistics Netherlands; Brian Graf, IMF, editor of the Manual; Claude Lamboray, Eurostat; Maria Mantcheva, IMF (Retired); Valentina Stoevska, ILO; Marcel van Kints, ABS; Mick Silver, IMF (Retired); and Jan Walschots, Statistics Netherlands (Retired).

The Manual has also benefited from valuable contributions by many other experts who served as primary reviewers for individual chapters, including: Badria Al-Aadi, NCSI (Oman); Carsten Boldsen, UNECE; Rob Cage, Bureau of Labor Statistics (United States); Barra Casey, CSO (Ireland); Ronald Johnson, Expert (external reviewer); Patrick Kelly, Statistics South Africa; Brent Moulton, Expert (external reviewer); Ragnhild Nygaard, Statistics Norway; Niall O’Hanlon, IMF; Federico Polidoro, ISTAT (Italy); Rafael Posse, INEGI (Mexico); Yunita Rusanti (BPS-Statistics Indonesia); and V. Thuy, GSO (Vietnam).

Finally, the Manual benefited from a comprehensive review and feedback from members of the IWGPS. These include: Carsten Boldsen, UNECE; Yuri Dikhanov, World Bank; Robert Dippelsman, IMF; Louis Marc Ducharme, IMF; Claudia Dziobek, IMF; Anne-Sophie Fraisse, OECD; Nada Hamadeh, IWGPS Chair, World Bank; Francette Koechlin, OECD; Paul Konijn, Eurostat; Claude Lamboray, Eurostat; Jarko Pasanen, Eurostat; Pierre-Alain Pion-nier, OECD; Valentina Stoevska, ILO; Gabriel Quiros-Romero, IMF; James Tebrake, IMF; and Peter van de Ven, OECD.

The IMF acted as the Secretariat of the TEG-CPI.

The TEG/CPI officially met twice: March 7–9, 2016 (Washington, DC) and January 18–20, 2017 (Vienna). Informal meetings were held on the sidelines of the meetings of the UNECE Expert Group on CPIs in 2016 and 2018. The Manual also benefited from detailed chapter-by-chapter discussions of the IWGPS members during October 29–30, 2018 (Paris) and January 9–10, 2020.

Gemma Diaz from the IMF Communications Department provided extensive editorial and production support for the final version of this Manual.

Acronyms and Abbreviations

2008 SNA

System of National Accounts 2008

API

Application Programming Interface

CADC

Computer-Assisted Data Collection

COGI

Cost of Goods Index

COICOP

Classification of Individual Consumption According to Purpose

COLI

Cost of Living Index

CPI

Consumer Price Index

DQAF

Data Quality Assessment Framework

DQRS

Data Quality Reference Sites

DSBB

Dissemination Standards Bulletin Board

EAN

European Article Number

EFQM

European Foundation for Quality Management

e-GDDS

Enhanced General Data Dissemination System

EU

European Union

EUROSTAT

Statistical Office of the European Union

FISIM

Financial Intermediation Services Indirectly Measured

G20

Group of Twenty

GDP

Gross Domestic Product

GEKS

Gini, Eltetö, Köves, and Szulc

GK

Geary–Khamis Method

GSBPM

Generic Statistical Business Process Model

GST

Goods and Services Tax

GTIN

Global Trade Item Number

HBS

Household Budget Survey

HFCE

Household Final Consumption Expenditure

HFMCE

Household Final Monetary Consumption Expenditure

HGMC

Hedonic Geometric Mean Characteristics

HGMI

Hedonic Geometric Mean Imputation

HICP

Harmonised Index of Consumer Prices

ICP

International Comparison Program

ILO

International Labour Organization

IMF

International Monetary Fund

IWGPS

Intersecretariat Working Group on Price Statistics

L-T

Long Term

MMM

Matched-Model Method

MSE

Mean Square Error

NA.

Not Available

NPISH

Nonprofit Institutions Serving Household

NSDP

National Summary Data Page

NSO

National Statistical Office

OECD

Organisation for Economic Co-operation and Development

OLS

Ordinary Least Squares

OOH

Owner-Occupied Housing

PPI

Production Price Index

PPP

Purchasing Power Parities

PPS

Probability Proportional to Size

R&D

Research and Development

SDDS

Special Data Dissemination Standard

SKU

Stock Keeping Unit

SPD

Structured Product Descriptions

SRS

Simple Random Sampling

S-T

Short Term

TDH

Time Dummy Hedonic

TPD

Time Product Dummy

TQM

Total Quality Management

UN

United Nations

UNECE

United Nations Economic Commission for Europe

UPC

Universal Product Code

VAT

Value-Added Tax

VIF

Variance Inflation Factors

Author: Brian Graf
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