CCPI now reflects new spending patterns

by Gamini Warushamana

The Department of Census and Statistics (DCS) will launch a new Consumer Price Index replacing the present Colombo Consumer Price Index (CCPI), the official price index of the country, to reflect the new spending patterns of the people in a diversified economy.

Director (Prices and Wages) of the DCS D. S. Gunawardana said that there is a growing demand for a new consumer price index because the indices available do not capture the changes taking place in the spending pattern in the economy. Existing CPIs only cover the low income households. There is a significant expansion of the middle class in terms of the spending pattern.

The new CPI will cover major towns in the Colombo district and is based on the Household Income and Expenditure Survey (HIES) 2002 data.

The present CCPI has several inherent weaknesses and does not reflect the real changes in the consumer prices. It is based on a household income and expenditure survey conducted in 1952. The outdated commodity basket considered in price collection and computation of the index generally leads to two types of computational biases, firstly missing the value of goods that no longer exists and secondly quality changes of items in the index over a long period of time.

According to today's consumption patterns some major expenditure components such as gas, footware, water, telephone, tuition fees, medical bills, clothing and travelling expenses are not included in the commodity basket. Similarly, some less important commodities such as red onions, fresh fish, dry fish, sugar and kerosene oil have been given higher weight while other important commodities such as big onions, dhal, fruits and butter have been given lower weight.

Due to the unrealistic weight attached to these items the CCPI shows high price sensitivity to several selected items and price changes in these items may have a high impact on the CCPI leading to unrealistic movements of the index, Gunawardana said.

According to the 1952 survey, the working class households spent 61.9% of their total income on food. However according to the 2002 HIES data, 50% lower income households spent only 52.7% of their total income on food.

When all households are considered the expenditure on food is only 43.8%. However, the expenditure on the non food category has increased sharply. The expenditure on miscellaneous items in the 1952 survey (Working class households) was 8.7% but in the 2002 survey (all households) it was 37.2%. This shows the changes in the expenditure pattern of the population.

Gunawardana said that these CCPI limitations are not new adding that a new index was a long-felt need.

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