Statistics South Africa today announced that it would make changes to the Consumer Price Index (CPI) basket of goods and services, and the weights attached to these, with effect from the January 2017 release of the CPI. The period since the last weight and basket update in 2013 is within the international best-practice convention of five years.
The basket of products whose prices on which inflation figures are calculated is based on the spending of South African households over a particular year. The primary source of this data is the Living Conditions Survey (LCS), the latest of which was conducted by Stats SA during 2014 and 2015. The LCS is aimed at providing household expenditure data but also measures poverty and inequality. The LCS records household spending on all goods and services, with the sample spread over a twelve-month period to ensure seasonal variations are properly captured.
A number of adjustments are made to the LCS results for the purpose of the CPI weights. These are aimed at compensating for under-reporting in certain categories, as well as CPI methodological considerations. For example, survey respondents tend not to report the full extent of expenditure on ‘sin items’ such as alcohol, tobacco and gambling. Data on excise taxes or gambling proceeds are used to determine the correct level of spending.
Expenditure on items such as insurance may result in payments back to the household in claims. The CPI methodology dictates that the weights must represent the difference between premiums paid and successful claims by the household.
There are currently 393 goods and services in the CPI basket. These represent the items in different categories on which households have spent the most money. The LCS results, together with information sourced from retailers and other private sector organisations, identify those items that should be added to or eliminated from the basket. The basket of products forms the basis of the pricing surveys to calculate the CPI each month.
All weights will be price updated. This means that the figures from the expenditure survey, which are set at May 2015, will be inflated by the relevant indices from the CPI to December 2016. This exercise accounts for likely changes in spending caused by price changes.
All the indices that comprise the CPI will be rebased so that they are set at a level of 100 in December 2016. Rebasing is a technical exercise which eliminates the impact of accumulated historical inflation on the present rates and provides for a smooth introduction of new weights. Rebasing does not change the previously published inflation rates.
Reweighting provides an opportunity for a review of the methods used to collect and compile CPI data. There are three product groups where research is currently underway to recommend possible methodological changes.
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The data for domestic worker wages is currently sourced from the Unemployment Insurance Fund, which requires employers to pay a set percentage of the salary of domestic employees. The alternative under consideration is Stats SA’s own Quarterly Labour Force Survey, which records the occupation and income of each individual in a sampled household.
The used car market has distinctive pricing behaviour where prices increase at the beginning of each year with the introduction of a fresh model - these are not incorporated into the CPI at present - and decline as the year proceeds. The used car index is currently deflationary. Methods are being investigated to better reflect the increase in price at the beginning of each year.
Gambling is the final product category under review. Conceptually, part of the price of a lottery ticket is paid back to households in winnings. The remainder accrues to the operator, government and other role players and is referred to as a service fee. Changes in the price of lottery tickets require adjustment based on any change in the ratio between the service fee and winnings pool. Research will suggest an appropriate technical method to calculate this.
Stats SA aims to present the updated weights, changes to the basket and methodological changes to the public in December 2016. The final weights, with price updating, will be published at the end of January 2017. The first CPI based on the new weights and basket will be for January 2017, and published on 15 February 2017.
Enquiries:
Patrick Kelly
Chief Director: Price Statistics
Cell: 082 888 2248
Email: patrickke@statssa.gov.za
