CPI and PPI
Presented by:
The Indices and Price Analyses Unit
Statistical Institute of Jamaica (STATIN)
7/23/2016
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Structure of the Presentation
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OVERVIEW
Introduction to the CPI
The HES and the CPI
Weights for the CPI
Computation of the CPI
 Price
Collection
 Index Calculation
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OVERVIEW
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The CPI and the PPI are indicators of
macroeconomic performance
They are direct indicators of the purchasing
power of money in various types of transactions
and other flows involving goods and services
They are also used as deflators in National
Accounts.
They provide an integrated view of price
developments pertaining to production and
consumption
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Introduction to the CPI

The Consumer Price Index is Jamaica’s
most widely used measure of the rate of
inflation.

The indices are also used to compare
movements of prices between regions as the
CPI is computed monthly for three regions:
 Greater
Kingston Metropolitan Area (GKMA)
 Other Urban Centres (OUC)
 Rural Areas
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What is the CPI?
•The Consumer Price Index measures changes in the
general level of prices of consumer goods and services
purchased by Low-Middle Income private households.
• It is the best economic instrument to use when
determining the effect of changes in retail prices on
the average household budget.
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The Contents and Structure of the CPI
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The “basket” was derived from HES
2004 – 2005 and represents a mix of
consumer products purchased by the
average household.
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Weights
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The amount of money spent on each item in the
CPI “basket” is compared to total household
spending to obtain the relative importance or
“weight” of the commodities in the “basket” .
The weights obtained from HES 2004-2005
were price updated to December 2006 – the
base period that is being used for the CPI
This price updating of the weights is also done
on a monthly basis.
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CPI WEIGHTS based on HES2004-5
COICOP DIVISION AND GROUP
WEIGHT
Food and Non-Alcoholic Beverages
37.4
Alcoholic Beverages, Tobacco
1.4
Clothing and Footwear
3.3
Housing, Water, Electricity, Gas and Other Fuels
12.8
Furnishings, Household Equipment and Routine
Household Maintenance
5.0
Health
3.3
Transport
12.8
Communication
4.0
Recreation and Culture
3.4
Education
2.1
Restaurants and Hotels
6.2
Miscellaneous Goods and Services
8.4
TOTAL
100
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Weights 2004-5
Divisions and Weights
8%
Food and Non- Alcoholic Beverages
6%
Alcoholic Beverages
Clothing and Footwear
2%
3%
38%
4%
Housing, Water, Electricity, Gas and
Other Fuels
Furnishings, Household Equipment
and Routine
Household Maintenance
Health
Transport
Communication
Recreation and Culture
13%
Education
Restaurants and Hotels
Miscellaneous Goods and Services
1%
3%
3%
5%
14%
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The Steps for Computing the CPI
Deriving the Inflation Rate
Deriving the Aggregate Index
Computing the Index
Deriving a Price Relative
Price Collection and Editing
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Computation of the CPI

The computation of the monthly CPI involves:

calculating a series of index numbers at the
detailed/item level of the index
 adding them to derive an aggregate index number.

Once the prices for goods and services have
been collected, they are:
 examined
individually to ensure the validity of the
data being used in the CPI calculations.
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Prices are compared with the previous month's data in an
effort to monitor price fluctuations and maintain consistency
from month to month.
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PRICE COLLECTION

Monthly, (quarterly and annual for some
special items) price collection surveys are
carried out at outlets such as: grocery
stores, markets, clothing and footwear
stores, furniture and appliance shops,
garages, doctors, dentists, law offices,
schools, insurance companies and barber
and beauty salons.
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PRICE COLLECTION cont’d.
Price data are also collected from the
appropriate authorities.
In total, over 30,000 individual price
quotations from across the entire island of
Jamaica are included in the computation
of the index
 The prices are collected from over 750
establishments or outlets.

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INDEX CALCULATION
The current CPI represents the Low to
Middle Income group which represents
approximately 85 per cent of the
population
 This Income group had a median
expenditure of $309,000 in 2004-2005
 The CPI is computed using the short-term
price relative version of the Laspeyres
Price Index

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THE PRODUCER
PRICE INDEX (PPI)
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Outline for PPI Discussion
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What is the PPI ?
PPI Structure & the JIC
Dissemation of the PPI
PPI vs. CPI
Base Year
PPI Parameters
Laspeyres formula
Selection – Establishments & Products
Price Collection
Production Cycle
Main Uses of the PPI
Publications for the CPI & PPI
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What is the Producer Price Index
(PPI)?
PPI represents a family of indices that
measures the average change over time in
the selling prices received by domestic
producers
 STATIN publishes an Output PPI that
measures the rate of change in the prices
of products sold as they leave the
producer.

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PPI Structure & J IC
The index is industry-based with each
establishment classified according to its
main activity
 The Jamaica Industrial Classification (JIC)
system is used to group economic
activities and products to provide an
organizational structure for the PPI

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Dissemination of the PPI

The current PPI covers two industries:
Mining & Quarrying
Manufacturing



The index for Agriculture is in its developmental
stage
For the two Industries there are over 140
establishments with a selection of over 400
products are represented in these two
industries.
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Dissemination Levels of Index
(A) Mining & Quarrying
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1.
Bauxite Mining & Alumina
Processing
2.
Other Mining & Quarrying
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Dissemination Levels of Index
cont’d
(B) Manufacturing
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1.
Food, Beverages & Tobacco
1.
Textiles, Wearing Apparel & Leather Products
1.
Wood, Wood Products & Furniture
1.
Paper & Paper Products
1.
Chemicals & Chemical Products
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Dissemination Levels of Index cont’d
(B) Manufacturing cont’d
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6.
Refined Petroleum Products
6.
Rubber & Plastic Products
6.
Other Non-Metallic Mineral Products
6.
Fabricated Metal Products excl. Machinery & Equipment
Products
6.
Other Manufacturing n.e.c.
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PPI vs CPI
Both the PPI and the CPI measure price change over time for a fixed
set of goods and services. However, they differ in two critical areas:
The composition of the set of goods and services
The goods and services included in the PPI are the marketed output of
domestic producers. The items included in the CPI are goods and
services purchased for consumption purposes by households.

The types of prices collected
The price collected for an item included in the PPI is the price that the
producer charges for goods and services. The price collected for an
item in the CPI is the retail price that the consumer pays.
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Base Year

PPI base year is 2005 and we are currently revising the base year to
2008.

Monthly prices have been collected since January 2005.

The Base year index is the average price of all products for the 12
months of 2005.

A monthly index is calculated as a ratio of the current months prices to
the base year.
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PPI Parameters
1. PRICE
SPECIFICATION PRICING

We are interested in the price of the product and the product must be priced
to constant quality (model, features, material, unit of sale, type of
packaging, conditions of sale, etc.)

transactions (excl. Price) must remain constant over time.

If the transactions are not comparable and the price changes, we will not
know if there was a pure price change or not.
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PPI Parameters
2. WEIGHTS

Weights show the importance of a particular item relative to the other items

Without weights, the relative prices for all commodities in the PPI basket
would be given equal importance
Weigths are almost as important as prices
Over time, establishment production levels shift in response to economic
conditions.
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Some products & industries become more important
Others become less important.
Eventually weights have to be adjusted to reflect the shift in the importance
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PPI Parameters
Weights are calculated at every level.
There are weights for:a.
Division
For Example:
Food, Beverages & Tobacco
a.
Major Group
Beverage (alcoholic, non-alcoholic)
b.
Group
Non - Alcoholic
c.
Product Group
Carbonated Drinks
d.
Establishment
Company Ab. Ltd.
e.
Product within establishment
10 oz. bottle (Fizzy Pop)\
f.
Domestic & Export
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Deriving the Index
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STATIN calculates the PPI using a modified Laspeyres
formula which combines:

Price relatives and
 Weights derived from the base period, where vi = vi is the value
weights allocated to each product i
n
Im  
i 1
v0 i
pti
p0 i
n
v
i 1
0i
*100
pti = price of the ith product in the current period
p0i = price of the ith product in the base period
voi = value of ith product in the base period
Indices and Price Analyses Unit,
7/23/2016
Statistical Institute of Jamaica (STATIN)
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Selection of Establishments
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Establishments are selected for a product
group according to:(i) major activity
(ii) contribution to Gross Domestic Product
(GDP)
(iii) contribution to a particular group
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Selection of Products
Within establishments
 According to the contribution of the
product to the establishment & product
group
 Similar products make up a particular
product group

(Prices are collected for each selected product on
monthly basis)
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Price Collection
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Monthly prices - collected with the aid
of a follow-up questionnaire.
Price Collection Period – 3rd & 4th week
of each month.
Price Collection Reference Period – Price
for last transaction of the previous month
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Follow-up Questionnaire
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Used after the establishment has been
initialized.
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Used mostly by interviewers who have monthly
contact with the establishments.
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Ongoing process - undertaken by trained field
officers
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Follow-up Questionnaire
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PPI Production Cycle
4
5
3
6
7
2
1
0
8
1
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2
Main Uses of the PPI

A national accounts deflator
A short-term indicator of inflationary trends
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For contract negotiations
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Required by international organizations for
country comparisons

As an analytical tool for business /
researchers
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Publications for both PPI and CPI
 Monthly
Bulletin
 Quarterly
 Annual
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Bulletin with monthly
Review/Report
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THANK YOU
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