The Consumer Price Index (CPI) is designed to measure the change in the average level of prices paid for consumer goods and services by all private households and foreign visitors to Ireland. The CPI is the official measure of inflation in Ireland. The most recent CPI figures are available on the Central Statistics Office (CSO) website.
The Central Statistics Office carries out this survey by collecting the prices of a fixed representative group of goods and services on an ongoing basis every month. These prices are then compared to the prices from the same goods and services from the previous month and the price change calculated. The prices of these goods and services are then combined into a single index measuring the overall level of prices. The index is compiled in respect of the second Tuesday of each month.
In measuring the CPI, not all goods and services are treated equally or, in other words, given the same weight. Because for example, people buy more chicken than caviar, the price of chicken (although not as expensive) will have a greater weight in the CPI than the price of caviar. The CSO decides what weight to apply to a product or service by determining the average weekly expenditure of an average household on the product or service taken from the result of the 5-yearly Household Budget Survey.
The goods and services that are included in the basket are determined from the Household Budget Survey. The relative importance or weights of these goods and services are also decided by the CSO from information collected in the Household Budget survey. The main purpose of the Household Budget Survey is to determine in detail the current pattern of household expenditure in order to update the expenditure weighting of the CPI. The most recent survey encompassed 7,644 households, which was a representative random sample of all private households in the State. In addition, area weights are used to construct weighted National Average Prices for each item of expenditure.
Suppose that you buy 5 apples and 2 oranges every month this year. Then the basket of goods purchased would consist of 5 apples and 2 oranges.
Now suppose we want to compare the price of 5 apples and 2 oranges in 2003, to the price of 5 apples and 2 oranges in 1998.
The CPI = (5 * Price of apples in 2003) + (2 * price of oranges in 2003) divided by (5 * Price of apples in 1998) + (2 * Price of oranges in 1998).
In this measurement of the CPI, 1998 is referred to as the base year. The index tells us how much it costs now to buy 5 apples and 2 oranges in 2003, compared to how much it cost to buy the same quantity of fruit in 1998. This is referred to as a "fixed basket" approach, where the items or quantities are fixed and only the price movement is taken into account. This reflects the pure price change.
You could also use the CPI - among other things - to check whether your wages have kept pace with prices. If your take-home pay increases by less than the index over a certain period (say a year), then you are less well off.
The CPI tells us the percentage change in prices over time. If we compare index numbers for two different products (as in the example above), we can say that the price of one product is rising or falling faster or slower than the other.
Prices will generally increase with time and your money loses purchasing power. This increase in the overall level of prices is called inflation.
Apart from calculating the overall price index, the CSO calculates indices for specific types of goods such as food or housing.
The CPI covers the full range of housing costs, namely:
The majority of houses and apartments are bought with a mortgage repaid over time. The interest costs form the bulk of most homeowners' outlay, particularly in the early years. Changes in the purchase price of houses and apartments, as well as changes in mortgage interest rates, are taken into account in estimating the change in mortgage interest costs.
The outright purchase of a house or apartment as a private residence is not covered in the CPI as it is considered to be a form of investment rather than consumer expenditure. Down payments in the case of mortgage arrangements and the capital element of mortgage repayments are also excluded from the CPI for the same reason.
Each month, the CSO publishes the monthly and annual rate of inflation - this is given in terms of the percentage changes in prices since the preceding month and since the same month in the previous year. These rates of inflation are the monthly and annual headline inflation figures quoted by economic commentators and the media.
The CSO also publishes separate indices and percentage changes for the following twelve groups of goods and services:
These 12 groups display price trends for broad categories of goods and services and the extent to which they contribute to overall inflation.
Pricing takes place in a sample of 86 locations (cities and towns) throughout Ireland. Over 50,000 price quotations are collected from a fixed representative panel of supermarkets, shops, department stores, petrol stations, service outlets, etc. A further 3,000 price quotations are collected by post on a monthly or quarterly basis from public utilities, transport companies, doctors, dentists, pharmacists, etc.
All goods and services bought for consumption are included in the index.
Personal visits are made to retail outlets by some 200 part-time price collectors on a monthly basis. These price collectors collect over 50,000 price quotations.
Most prices are collected monthly, but some are only collected quarterly and others annually. Data collected annually includes local authority charges; library charges; school uniform, school transport and school textbook prices; fees charged by private schools; society subscriptions (golf, rugby, tennis, etc.); piped gas; examination fees; therapeutic equipment (e.g., wheelchairs); passport and birth certificate fees; motor tax and third-level education fees.
The CSO supplies general specifications to price collectors about brand and size of goods to be selected for pricing for certain items for which National Average prices are produced monthly.
Price collectors initially select particular varieties (e.g., specific sized tin and brand of baked beans) of an item that is popular in its locality for regular monthly pricing. This allows for a wide variety of different sizes and brands of the same item to be priced throughout the country. Once selected, the same size and brand is priced in the same shop on a monthly basis in order to ensure matched price quotations and mark any increase consistently.
If an item is discontinued for whatever reason, a substitute good or service can be used but the price is not included in the calculation until two successive monthly price quotations are obtained for it.
The varieties priced for a particular item can then differ throughout the country. This ensures that the CSI covers the price trends of a spread of goods and services that are locally popular with consumers.
The prices collected each month are stratified into five town size categories. Within each of these categories, the price quotations returned for a particular item are matched with those for the preceding month. The matched price quotations in both months are averaged for each town category and weighted to give a national average price for both periods. Their ratio gives the average monthly price change for the index item in question. In this way, the retail price movements are weighted to reflect proportionally the population and economic activity for each area.
The CPI releases are available to the public from the CSO web site free of charge. Hard copies of the release can be obtained at a cost of 2.50 euro.
All information supplied to the CSO is treated as strictly confidential. The Statistics Act, 1993 sets out stringent confidentiality standards stating that information collected may be used only for statistical purposes and that no details that might be related to an identifiable person or business undertaking may be divulged to any other Government department or body.
The results of the Consumer Price Index are available to the public on request from the Central Statistics Office.
If you have a question relating to this topic you can contact the Citizens Information Phone Service on 0761 07 4000 (Monday to Friday, 9am to 8pm) or you can visit your local Citizens Information Centre.