CPI Measurement Problems
The Case of Malawi
By Charles Machinjili
National Statistical Office
Malawi
Introduction
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Malawi
Small landlocked sub-Saharan Africa
Area around 118,000 sq kms
Population 12 million mid yr 2005
Economy predominantly agricultural
Accounting for 40 % of GDP
Household Expenditure Surveys have been
done every 10 yrs since 1964
• The data has been used for constructing CPI
Methodology
• Two Strata: Urban and Rural
• Fresh produce actually bought since sold
in heaps and bundles
• Other commodities use price quotations
• Prices collected through out country using
Regional Statistical Offices
• Index calculated using Excel spreadsheets
• Use base-weighted Laspeyres formula
Measurement Problems
• Derivation of weights: Over 85 %
population is in rural areas without
monetized expenditure
• Engage in own-consumption: should this
be included or left out
• Current CPI includes own-consumption of
foodstuffs leading high weight for Food
Group in index
• Collection of Prices: Timing is important
since it determines the level of prices
• In Malawi certain days are designated as
market days and it is necessary to collect
prices on such days
• However it may be necessary to get an
average price for the month
• Purchasing and Weighing of Items: Items
from produce markets, usually sold in
heaps and bundles, are bought and later
weighed to get unit prices
• Problems of cost, getting accurate
readings from weighing equipment,
disposal of commodities
• Missing Items: Where no prices are
available what should one do: assume last
month’s price which is the case in my
country----leading to an underestimate of
the price
• Quality Changes: When observed
differences are negligible price collector
substitutes new for the old product
• Non-comparable substitution maybe used
• Non-comparable substitution uses overlap
pricing. This requires that the prices of
both the old and new product are available
at least one time period
• Choice of formulae: Use of Laspeyres
formula with its fixed base takes no
account of people’s ability to substitute to
achieve the same utility when commodities
become more expensive over time
Improvements to Measurement of
CPI
• Commodity Weights: Right methodology
for collecting expenditure has to be
determined from outset: Is it diary and for
what duration or is it a one time question
with short recall period?
• Monetary versus non-monetary
expenditure: inclusion of one or both
requires consideration
• Timing of Price Collection: Special
“market days”, common in developing
countries especially in rural areas should
be taken into account
• Weighing of Commodities: As far as
possible electronic/digital scales should be
used
• Missing items: Explicit imputation is
recommended
• Quality Change: Estimate price trend of similar
products to represent price trend of discontinued
product without direct comparison between price
of old and new product. Difference in price of
imputed price (old product) and new product is
the implicit quality adjustment
• Substitution bias: Use formulae that allow for
substitution effects e. g the Fisher Ideal Price
Index
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THANK YOU