COMPARISON OF CONSUMER PRICE INDEX BASKET BETWEEN CURRENT BASE YEAR AND NEW BASE YEAR IN MYANMAR. Nyaung Tai

Transcription

1 COMPARISON OF CONSUMER PRICE INDEX BASKET BETWEEN CURRENT BASE YEAR AND NEW BASE YEAR IN MYANMAR By Nyaung Tai A call paper submitted in Requirement for ESCAP Asia-Pacific Economic Statistics Week Seminar Component Bangkok, 2 4 May 2016 at the Central Statistical Organization (CSO) 5 April 2016

2 CONTENTS CONTENTS... ii LIST OF TABLES... iii LIST OF TABLES... iv ACRONYMS... v ABSTRACT... vi Chapter 1 INTRODUCTION Background Objectives of the Study Organization of the Study. 2 Chapter 2 LITERATURE REVIEW Concepts and definition Consumer Price Index (CPI) Inflation CPI Scope and Weights CPI basket and Classification.. 7 Chapter 3 DATA AND METHODOLOGY Regional Data Selecting Commodities and Outlets Price Collection CPI Weighting Pattern Compilation Method.. 13 Chapter 4 DISCUSSION Consumer Price Index and Inflation Chapter 5 CONCLUSION AND RECOMMENDATIONS Conclusion Recommendations. 20 References 21 ii

3 LIST OF TABLES Table 2.1 Comparison of weights between 2006 base year and 2012 base year. 6 Table 2.2 Comparison of CPI basket between 2006 base year and 2012base year... 8 Table 3.1 Components and weights of the CPI basket 11 Table 3.2 Differences method between current CPI and new CPI. 14 Table 4.1 Comparison of CPI& Inflation between 2006 current base year and 2012 new base year. 16 Table 4.2 Comparison of monthly CPI& Inflation between current base year and new base year of Table 4.3 Base year comparison within ASEAN Countries. 19 LIST OF FIGURES iii

4 Figure 4.1 Comparison of monthly CPI& Inflation between current base year and new base year of ACRONYMS ASEAN CES COICOP Association of South East Asian Nations Consumer Expenditure Survey Classification of Individual Consumption according to Purpose iv

5 CPI CSO FPI HIES LPI MNPED PPI RAP Consumer Price Index Central Statistical Organization Fisher Price Index Household Income and Expenditure Survey Laspeyres Price Index Ministry of National Planning and Economic Development Paasche Price Index Ratio of Arithmetic Mean Prices Abstract This paper studies the comparison of Consumer Price Index (CPI) basket between current base year and new base year. The Central Statistical Organization (CSO) is collecting the prices of selected commodities (158) items for computing states/regions and union levels of CPI with Laspeyres Price Index (LPI) formula on the 2006 base year that is using simple average method. The selected commodities includes (83) food items and (75) non-food items are taken as representative consumer market basket items from Household Income and Expenditure Survey (HIES) that used stratified three stages random sampling and collected data on commodities and services (436) items from households of 80 townships in December CPI 2006 base year covered for only urban household. CSO v

6 is trying improving CPI to change new 2012 base year that consists of selected commodities (274) items from households in 82 townships of HIES by using Classification of Individual Consumption according to Purpose (COICOP), the standard international classification as well as present classification of items adopted in the existing CPI numbers compiled at both of urban and rural level. New CPI base year will be used Modified Laspeyres Price Index. The selected commodities are food (108) and non-food (166) to compute CPI by using geometric mean method. In the market economy, prices are basically determined by forces of supply and demand. As price have influence on the behavior of the economy, and impact on the real income of the people, a number of price indexes are constructed and used in economic analysis. It shows the changes in prices of specific consumer items in a representative consumer market basket related to a base period which represents a fairly normal period insofar as possible. Key words: Laspeyres Price Index, Modified Laspeyres Price Index, Simple Average Method, Geometric Mean Method, Improving CPI, Inflation vi

7 CHAPTER 1 INTRODUCTION 1.1 Background The world is enjoying the fruits of modern technology in many ways which are based on the quality of statistics for economic sector. Economic statistics is very important for a country. The statistics indicates the real economic conditions of a country and economic statistics (or) indicators are showing how much economic growth can be reflected on people of the country. Myanmar has been moving towards a free market-oriented economy, since late In the market economy, prices are basically determined by forces of supply and demand. As prices have influence on the behavior of the economy and impact on the real income of the people, a number of price indexes are constructed and used in economic analysis. Among them, CPI is a widely referred one that draws the attention of policy-makers, decision-makers, entrepreneurs and investors and which also concerns the general public. It shows the changes in prices of specific consumer items in a representative consumer market basket related to a base period. The CSO had used differing years such as 1958, 1965,1972,1978,1986, 1997 as the base period in CPI computation over time. CPI measures changing of prices based on nationwide HIES which conducted once in five years. CPI is used as a principal measure of Inflation in Myanmar. CPI and Inflation are key economic indicators; CSO computes monthly CPI for the users at varied levels, i.e., union, regions/states and cities and submits the findings to the higher authorities for necessary action, within a week from the end of month reported Objectives of the study HIES survey uses to conduct for using CPI base year. CSO is now using 2006 base year for computing CPI based on HIES which was conducted in December When conducting the 2006 HIES, sampling frame drown out form administrative records released by Ministry of Home Affair. In this survey, three stages stratified random sampling had used. These were as 1

8 follows: 1st stage for townships, 2nd stage for wards and village tracks and 3rd stage for households. In this survey, households in 80 townships were monitored. When compiling the CPI 2006-based, Union price is a weighted average price of these 80 townships. The fluctuation of CPI depends on its weight and prices. In 2006-based, there are only 158 commodities including 83 food items and 73 goods and services, and the commodities are mostly domestic products. Therefore, Items lists are out of date and it is need to repair modernized. Moreover, the order of item does not in line with the COICOP and it can t compare with the statistics of international agencies. Above mentioned problems, CSO need to change the new CPI base-year. As the objectives of this paper, 3 parts are shown as follows; (1) To overcome the problems of 2006 base CPI (2) To standardize in line with international level (3) To reflect the current situation consumption 1.3. Organization of the study This paper consists of five chapters. The first chapter comprises introduction, background, objectives, and paper organization. Chapter 2 describes literature review, which states previous empirical evidence of compilation of the CPI in a country. Chapter 3 explains using data and methodology. Chapter 4 shows discussion of the results. Finally, Chapter 5 concludes the paper by showing the comparison result of the 2006 base year and 2012 new base year in Myanmar. 2

9 CHAPTER 2 LITERATURE REVIEW The price section of CSO under the Ministry of National Planning and Economic Development (MNPED) is collecting, compiling, computing, and dissemination the price of selected commodities for states/regions, and Union levels of CPI and Inflation. The price section has been summiting daily CPI for Yangon, Naypyitaw (Pyimana, Lawei, and Tatkone), gold prices and US $ value to higher Authority. And also, 15 states/ regions, Yangon City, Mandalay City, and Naypyitaw Council of CPI and inflation for weekly, monthly, and yearly are presented. Price section has been using 2006 base year to computing CPI with LPI formula. CPI basket weights based on HIES, 2006 December. In Base Year Revision of Consumer Price Index (CPI), Republic of India Ministry of Statistics and Programme Implementation (2015) writes that the base year of this series of CPI is 2010=100 and weighting diagrams are based on the results of Consumer Expenditure Survey (CES) Current commodities price reflects on individual consumption by households. Changes in price level of goods and services in Myanmar that most people buy for their day-to-day consumption. Therefore, our CPI baskets need to reflect the consuming of Myanmar s households. New CPI with a base year of 2012 will meet with our needs. CSO is now working on an updated consumer price index to measure retail inflation that would have a lesser weighted for food prices. Veronica & Irene (2010) showed that the rate of change in the CPI, which captures the changes in the characteristic Filipino household cost of living based on the movements of the prices of items in the basket of goods and services consumed. The current base year is using CPI basket (158) items in accordant with Myanmar consumption pattern in CSO is now trying improving CPI that is to change new 2012 base year with COICOP that consists of (12) heading group. The international standard classification of COICOP that is being followed the geometric mean, instead of arithmetic mean being used in 3

10 the old series, of the price relatives with respect to base prices would be used to collect CPI basket item (Republic of India Ministry of Statistics and Programme Implementation,2015) Concepts and definition Consumer Price Index (CPI) The CPI represents prices paid by consumers or households. Prices for a basket of goods are compiled for a certain base period. Price data for the same basket of goods is then collected on a monthly basis. This data is used to compare the prices for a particular month with the prices from a different time period. The CPI measures the average change in the retail price of goods and service purchased and consumed overtime. CPI can calculate the following of formulas are: P 1i =Price of item i in the current period P 0i =Price of item i in the base period Q 1i = Quantity of item i in the current period Q 0i = Quantity of item i in the base period n Σ = Total items = Sum n term of multiply quantity and price LPI = Laspeyres Price Index 4

11 PPI = Paasche Price Index ip t = Price of item i in comparison period t ip 0 = Price of item i in comparison period 0 iw 0 = Expenditure on item i in base period 0, divided by expenditures on all items in base period 0 iw t = Expenditure on item i in comparison period t, divided by expenditures on all items in comparison period t = Indicates the product operator Inflation The Inflation can be measured by computing percent change in current month CPI from month to month or percent change from the same month of the prior year; however such computation may produce misleading rate should the months under study happen to be extreme period showing sharp fall or rise in prices. Therefore, annual rate of inflation is computed by taking 12 month of year, according to the following formula: bi = CPI for the current period ai = CPI for the corresponding month of the previous year CPI scope and weights The current CPI covers the consumption of urban households of Myanmar and is based on the HIES 2006 reflecting December average consumption. The new CPI 2012-based will 5

12 cover both urban and rural private household consumption based on the HIES The December average consumption per urban and rural households was used to derive total consumption of all households in the regions/states. As total expenditure was measured in December 2012 with prices of that period, the weights were price-updated to current price level using the current indices. For new products; the index of a link product was used to proxy the price change of the new product. The regions/states level consumptions were used to receive the total union consumption. Table (2.1) presents the comparison of weights between 2006 base year and 2012 base year, which have food items in the higher weights than other items. Table 2.1 Comparison of weights between 2006 base year and 2012 base year Code No. Items Group 2006= = Food And Non-Alcoholic Beverages Alcoholic Beverages, Tobacco Clothing And Footwear Housing, Water, Electricity, Gas And Other Fuels Furnishings, Household Equipment And Routine Household Maintenance Health Transport Communication Recreation And Culture Education Restaurants And Hotels Miscellaneous Goods And Services Source: Price Section, CSO 6

13 2.1.4 CPI basket and classification The new CPI introduces the UN COICOP classification. The classification is used internationally and makes it possible to make international comparison of inflation on more detailed level. The current CPI includes 158 products and services, 83 food items and 75 nonfood items. The new CPI has 274 products and services, 108 food items, 166 non-food items including goods and services. There are new 116 items in the index, for example new and used cars, mobile phones and mobile phone charges and computers etc. When constructing the CPI 2006-based, both of purchased and non-purchased items are included. But in 2012-based, non-purchased items are excluded from total expenditure. In table (2.2) there is a comparison of weights between 2006 base year and 2012 base year. 7

14 Table 2.2 Comparison of CPI basket between 2006 base year and 2012 base year 2006= =100 Sr.no Commodity Group No. of Consumer items Commodity Group No. of Consumer items I Food 83 Food Rice 1 2. Oils 4 3. Meat, Fish& Eggs Others 53 II Non-Food Food and Non-Alcoholic Beverages Non-Food Clothing and apparel House rent and repairs Alcoholic beverages, Tobacco 8 2. Clothing and Footwear Fuel and Light Housing, Water, Electricity, Gas and Other Fuels Miscellaneous Goods Furnishings, Household Equipment And Routine Household Maintenance 32 (a) Education (8) 5. Health 10 (b) Medicine (5) 6. Transport 18 (c) Conveyance (9) 7. Communication 3 (d) Cleansing and Toilet (8) 8. Recreation And Culture 13 (e) Other (12) 9. Education Restaurants And Hotels Miscellaneous Goods And Services 21 Total Source: Price Section, CSO 8

15 CHAPTER 3 DATA AND METHODOLOGY 3.1. Regional Data In the current CPI the indices are compiled in township level. And also, CSO is computing CPI and Inflation for union, states and region levels. The new CPI will be compiled in states/regions level and 3 major cities (Yangon, Mandalay and Naypyitaw) and Union level. The Yangon, Mandalay and Naypyitaw region indices are compiled excluding the cities. Therefore, union level consists of states/regions (15) and (3) major cities, which are total of (18) townships. 3.2 Selecting Commodity and Outlets In selecting the items as CPI basket, it depends on consumption of households that spend more on some items and less on the others. A total of 274 varieties are included in the CPI basket, 108 items for food and 166 items for non-food including goods and services. They are classified into 12 main divisions based widely on the COICOP. In the CPI 2012 base, some new products come to include which were not included in 2006-based such as automobile, motorcycle, computer, cell phone, call charges etc. Outlets were chosen depend on total number of households within a township. Total outlets, therefore, among the cities were not same. The total number of outlets selected for pricing is 258 and observation prices are about 70, Price Collection The current CPI prices are collected on a weekly basis from 80 townships, 4 outlets in each township. The weekly average price of township is calculated. Average price of state is receives as an average of these township averages. Also the union level average price is calculated as non-weighted average of township averages. The upper level index is then achieved as weighted average of these lower level averages of averages. 9

16 In the new CPI prices will be collected from 82 townships. Number of outlets in one township depends on the number of households in the township. In biggest townships, there are 7 outlets and in the smallest townships there is 1 outlet. The prices will be collected only once a month/outlet, but in region/state level all weeks of the month are covered. Individual outlet the prices are collected at the same week of the month. In total there are 258 outlets in the sample. For homogenous products, e.g. Rice Emata, only one price per outlet is collected, for more heterogeneous product, e.g. Mobile phones, two to three prices per outlet is collected. Some prices that are same in the whole union, e.g. electricity, are centrally collected and the same index is used for all states/regions. 3.4 CPI Weighting Pattern In compilation of the CPI, weights are required to reflect the relative importance of each item in the basket, that is, their share as a proportion of total household expenditure. In driving the CPI weight, 15 states and regional and 3 major cities were compiled, and Yangon, Mandalay and Naypyitaw region weight were constructed excluding the cities. Weights of Union, state and regional level are shown in Table (3.1). Table 3.1 Components and weights of the CPI basket Component Weight Union Kachin State Kayah State Kayin State Chin State All Item Food and Non-Alcoholic Beverages Alcoholic Beverages, Tobacco Clothing and Footwear Housing, Water, Electricity, Gas and Other Fuel Furnishing, Household Equipment, and Routing Household Maintenance Health Transport Communication Recreation and Culture Education Restaurants and Hotels Miscellaneous Goods and Services Source: Price Section, CSO 10

17 Table 3.1 Components and weights of the CPI basket Cont. s Saging Region Tanintharyi Region Bago Region Magwe Region Mandalay Region Component Weight All Item Food and Non-Alcoholic Beverages Alcoholic Beverages, Tobacco Clothing and Footwear Housing, Water, Electricity, Gas and Other Fuel Furnishing, Household Equipment, and Routing Household Maintenance Health Transport Communication Recreation and Culture Education Restaurants and Hotels Miscellaneous Goods and Services Source: Price Section, CSO Mon State Rakhine State Yangon Region Shan State Arawaddy Region Component Weight All Item Food and Non-Alcoholic Beverages Alcoholic Beverages, Tobacco Clothing and Footwear Housing, Water, Electricity, Gas and Other Fuel Furnishing, Household Equipment, and Routing Household Maintenance Health Transport Communication Recreation and Culture Education Restaurants and Hotels Miscellaneous Goods and Services Source: Price Section, CSO Naypyitaw Region Yangon City Mandalay City Naypyitaw City Component Weight All Item Food and Non-Alcoholic Beverages Alcoholic Beverages, Tobacco Clothing and Footwear Housing, Water, Electricity, Gas and Other Fuel Furnishing, Household Equipment, and Routing Household Maintenance Health Transport Communication Recreation and Culture Education Restaurants and Hotels Miscellaneous Goods and Services Source: Price Section, CSO 11

18 3.5 Compilation Method formula: The current 2006 base year has been computing CPI by using the following Laspeyres s P 1i = Price of item i in the current period P 0i = Price of item i in the base period Q 1i = Quantity of item i in the current period Q 0i = Quantity of item i in the base period n = Total items Σ = Sum n term of multiply quantity and price The international agencies are using geometric mean to compute CPI. But, Myanmar is using Arithmetic mean/simple Average Method for computing CPI. Therefore, CSO is trying to change improving CPI by using geometric mean according to international standard of the COICOP. In the new index at the micro-level (one product in one region) a geometric mean of price changes from previous month is calculated. The index for current month is received by multiplying the previous month index with this change. The new 2012 base year will be computing CPI by using the following Modified Laspeyres s formula: I i i t = I t 1 i π p t i, where pi t 1 I t i is an index of product i in month t, i I t 1 is an index of product i in month t-1, p t i is price of product i in month t and i p t 1 is price of product i in month t-1 12

19 To receive the upper level indices and the Union index, the weighted average of these micro-level indices calculated. I t = w i i i o I t, where I t is index for month t and w o i is weight of product i in base period w 0 i = p 0 i q 0 i p 0 q 0. Table (3.2) shows that differences method between current CPI 2006 base year and new CPI 2012 base year. Current CPI need to change improving method and methodology to develop computing new CPI by using international standard. Table (3.2) Differences method between current CPI & new CPI Current 2006 Base Year New 2012 Base Year Total items are 158 Total items are 274 Food items are 83 Food items are 108 Non Food items are 75 Non Food items are households in 80 townships households in 82 townships Using simple average/ratio of arithmetic mean prices method Will be used geometric mean method Only urban HHs covered Both of urban and rural HHs will be covered Laspeyres price index Modified Laspeyres price index It Will be used COICOP Source: Price Section, CSO 13

20 CSO is computing the union level of current CPI 2006 base year by fixed choosing of the (158) items. Although, the new CPI 2012 base year is based on the expenditure of states/ regions, which is identified biggest or smallest of the expenditure for townships. Therefore, each of townships cannot be same CPI basket for collecting items. In Myanmar, there is also interest on average prices. In the current average prices are calculated as mentioned above in the index methodology part. In new production system, the average prices will be calculated on the regional level. The union level average price will be the weighted average of these averages. The same weights are used as in the CPI calculation. 14

21 CHAPTER 4 DISCUSSION 4.1 Consumer Price Index and Inflation Table 4.1 presents the comparison of the CPI and inflation between 2006 current base year and 2012 new base year. This table results show that the new 2012 base year is lower than the current 2006 base year for computing CPI and inflation. The reason of the different results appeared the higher gap CPI baskets between the current and new base year, changing weights, adding new goods and service, and using arithmetic mean to geometric mean for computing average price of CPI and inflation. Table 4.1 Comparison of the CPI and Inflation between 2006 current base year and 2012 new base year Particular Base Year CPI 2006 = = Annual rate of inflation 2006 = = Year on Year inflation 2006 = = Source: Price Section, CSO According to the geometric mean results, CPI was and Inflation was 4.88 % for In , CPI was and Inflation was 3.38 %. The CPI of fiscal year of 15

22 is higher than CPI fiscal year of But, fiscal year of inflation lower than of inflation. Because of the commodities price was not factual rising and falling for fiscal years. That s why; the growth rate of CPI is very high. Table 4.2 Comparison of monthly CPI &inflation between current base year and new base year of 2014 CPI Inflation Month 2006 Base Year 2012 Base Year 2006 Base Year 2012 Base Year JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Source: Price Section, CSO 16

23 Figure 4.1 Comparison of monthly CPI &inflation between current base year and new base year of 2014 Comparison of monthly CPI &inflation between 2006 base year and 2012 base year of JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC CPI 2006 Base Year Inflation 2006 Base Year CPI 2012 Base Year Inflation 2012 Base Year Source: Price Section, CSO The comparison of monthly CPI & inflation between current base and new base for 2015 in Table 4.2 and Figure 4.1, that shows current 2006 base year is higher than new 2012 base year of inflation with monthly. Because of a much of commodities were widely used in new CPI which is reflected on current consumption pattern. Otherwise, 2012-based CPI basket has 274 items that of much more than 2006-based 158 items. That s why, the CPI and Inflation of new 2012 base year is lower than that of current CPI and inflation. 17

24 Table 4.3 Base Year Comparison within ASEAN Countries Sr. Country Base Year 1 Singapore Thailand Myanmar Philippine Malaysia Cambodia Indonesia Laos Brunei Vietnam 2010 Source: ASEAN Statistical Year Book Table (4.3) presents base year comparison within ASEAN countries for computing CPI. The different base year of the ASEAN countries are using that Singapore (2014), Thailand (2011), Malaysia, Cambodia, Indonesia, Laos, Brunei, and Laos (2010), and Philippine and Myanmar (2006) for computing CPI. In the world, most of countries are trying to change improving CPI with new base year for reflecting of the current situation of the households. 18

25 CHAPTER 5 CONCLUSION AND RECOMMODITION 5.1 Conclusion CSO has been undergoing to change the CPI, which is gauge in Myanmar, base year from 2006 to It will help the available consumption patterns across nation-wide, and for non-food subgroup titles, the weight was significantly increased up to % compare with that of 37.68% in 2006 base. CPI, which tracks inflation at the consumer level, has become the key measure of inflation for Central Bank of Myanmar (CBM) to decide on monetary policy action. United Nation (2009) reported that CPI is widely scope, which has used macroeconomic indicator of inflation that has been targeting and monitoring to stable price, and as deflators in the national accounts by governments and central banks. Price section has been doing exercise of the new CPI pattern with IMF expert, who had come to CSO of Myanmar seven times. According to experts, the revision of base year will have a marginal impact on the index. The methodology of calculating inflation will also see a change from the present average method to geometric mean, which will take care of a particular category driving the entire index, an internationally accepted practice. The CPI basket includes items for which more than 75% households have reported consumption. In 2006-based CPI, the key problem of the index methodology is using unweighted average of Township prices to calculate states/regions and union level indexes are incorrect. The states/regions level indexes to be consistent with the Township indexes require weighting. Although average prices at Township level acceptable, a focus on deriving comparable average prices over time results in sub-optimal indexes. The current base year has too few varieties priced (generally only one for each item) and too few outlets (usually only one in each Township). The new CPI measures more data. The current CPI 2006 base year listed one index for each of the five pricing categories (food, fuel, clothing, housing, and miscellaneous). The new 19

26 CPI, however, includes more data within each of the five categories. For example, the miscellaneous category now includes subcategories of: education, medical care, recreation, transportation, personal care, and household requisites. In addition, the new CPI provides an index for each of the 15 Myanmar states/regions as well as a general All Myanmar index. Therefore we hope the new CPI 2012-based would be much more reliable than the old one, and this breakdown allows for greater precision and transparency in measuring price changes in the Myanmar economy. 5.2 RECOMMENDATIONS The government will be able to change reflecting CPI basket items, to use updating HIES survey base year, and to follow the international standard of the CPI calculation to improve economic statistics. The previous empirical evidence provided with this study not only contributes to the literature to support the condition of the CPI in country, but also provides information on policy makers in Myanmar upon which to analyse economic sector by consumption pattern. 20

27 REREFENCES [1] Republicof India Ministry of Statistics and Programme Implementation (2015). Base Year Revision of Consumer Price Index (CPI). Available from [2] United Nations Practical Guide to Producing Consumer Price Indices. New York and Geneva. [3] Veronica, B., & Irene, T A Geometric Price Index for the Philippines: A Preliminary Assessment. BSP Working Paper Series 10(01). 21