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Statistics > Price Statistics > Methodology
Methodology of Price Collection and Computing Price Indices
Introduction
  The Federal Bureau of Statistics (FBS), previously known as Central Statistical Office (CSO) came into existence in 1950. Soon after its establishment, due importance was given to Price Statistics and full-fledge Price Statistics Section was established which is responsible for collection compilation and presentation of retail/wholesale prices as well as computation of Price Indices was established. Price Statistics Section is collecting wholesale and retail prices and computes three indices namely;
(A) Consumer Price Index (CPI)
(B) Sensitive Price Indicator (SPI) and
(C) Wholesale Price Index (WPI)

The procedure for collection of price data and methodology of computing price indices are given below: -		  
A. CONSUMER PRICE INDEX (CPI)
INTRODUCTION
Consumer Price Index (CPI) is the main measure of price changes at the retail level. It measures changes in the cost of buying a representative fixed basket of goods and services and generally indicates inflation rate in the country.
BACKGROUND
The Consumer price index was computed for the first time with 1948-49 as a base for industrial workers in the cities of Lahore, Karachi and Sialkot only. Continuous efforts have been made, since then, to make CPI more representative by improving and expanding its scope and coverage in terms of items, category of employees, cities and markets. Accordingly, the CPI series were computed with 1959-60, 1969-70, 1975-76, 1980-81 and 1990-91 as base years. At present, the CPI is being computed with 2000-01 as base year. The details about modus operandi of computation of index are given in the subsequent paragraphs.
COVERAGE OF CITIES AND SELECTION OF MARKETS
The CPI series cover 35 urban centers of Pakistan. Depending upon the size of the city, 1 to 13 markets have been selected from where the prices are obtained. The markets have been chosen keeping in view the volume of sales, assuming that majority of the category of employees for CPI make the purchases from these markets. Thus, the prices represent the actual consumer prices. The number of markets covered in 35 cities is 71. The names of the cities and number of markets in each city are given below :-

 
S. No. Name of City Name of Market S. No. Name of City Name of Market
1 Lahore 07 19 Karachi 13
2 Faisalabad 02 20 Hyderabad 04
3 Rawalpindi 06 21 Sukkur 02
4 Multan 03 22 Nawabshah 01
5 Gujranwala 01 23 Larkana 01
6 Sialkot 01 24 Mirpurkhas 01
7 Sargodha 01 25 Shahdadpur 01
8 Islamabad 04 26 Kunri 01
9 Jhang 01 27 Peshawar 03
10 Bahawalpur 01 28 Mardan 01
11 Bahawalnagar 01 29 Abbotabad 01
12 Okara 01 30 D.I Khan 01
13 Jhelum 01 31 Bannu 01
14 D.G Khan 01 32 Quetta 02
15 Mianwali 01 33 Khuzdar 01
16 Attock 01 34 Turbat 01
17 Samundri 01 35 Loralai 01
18 Vehari 01 Total Markets 71
INCOME GROUPS AND OCCUPATIONAL CATEGORIES
As the consumption pattern of individuals depends on their income level and occupation, the population under observation is therefore, categorized under various income groups and occupational categories. This serves to a certain the impact of price changes of various commodities on their purchasing ability. The income groups and occupational categories covered in the CPI are given below:-
INCOME GROUPS & OCCUPATIONAL CATEGORIES
In the base 2000-2001, the categories of employees have not been considered and only following four (4 ) income groups are covered:-
1. Upto Rs. 3000/-
2.        Rs. 3001/ to Rs.   5000/-
3.        Rs. 5001/ to Rs. 12000/-
4. Above Rs. 12000/-
  BASKET OF GOODS AND SERVICES  
The current CPI covers 374 items in the basket of goods and services, which represent the taste, habits and customs of the people. This basket has been developed in the light of results generated through the Family Budget Survey conducted by the FBS in 2000-01. The basket of goods and services comprises on 10 major groups (2000-2001 base). The groups and number of items covered in each group and weights in 2000-2001 base year are given below: -
S.No. Group Number of item
 2000-2001 		Weights
1 Food & Beverages 124 40.34
2 Apparel, Textile & Footwear 42 6.10
3 House Rent 1 23.43
4 Fuel and Lighting 15 7.29
5 Household, Furniture & Equipments 44 3.29
6 Transport & Communication 43 7.32
7 Recreation & Entertainment 16 0.83
8 Education 24 3.45
9 Cleaning, Laundry & Personal Appearance 36 5.88
10 Medicare 29 2.07
        Total 374 100.00
  CONCEPTUAL BASIS OF CONSUMER PRICE COLLECTION  
Consumer prices for computation of CPI are collected from retail stores and service establishments. These are the prices at which they are sold direct to the consumers. In other words, the FBS collects transaction prices as against list or tag prices fixed by the manufacturers or various price-monitoring agencies.
  METHOD AND FREQUENCY OF DATA COLLECTION  
  FBS staff located in 35 Regional/Field offices collects price data regularly on monthly basis. They personally visit shops, stores, and establishments according to a predetermined time schedule and collect the prices of the selected items. Prices are reported in schedules developed for this purpose. The contents of the schedules include name of the city, item, its specification and unit price quoted by four different shopkeepers. The time schedule for collection of prices is given below:-  
Time Table For Collection of CPI Prices
 
Name of Schedule Frequency data Date of collection
Part-I
Food & beverages		 Monthly 11-14 of each month
Part-II
Apparel, Textile, and
Footwear, Fuel & Lighting		 Monthly 1-3 of each month
Part-III
Household, Furniture & Equipment etc. and Transport & Communication		 Monthly 4-6 of each month
Part-IV
Recreation, Entertainment & Education Cleaning, Laundry & Personal Appearance & Medicare		 Monthly 7-10 of each month
  Supervision of Price Data Collection  
  One Statistical Officer in every Regional/Field office has been made responsible for the technical supervision of work done by the price collectors. He is required to ensure that technical aspects of price collection are clearly understood and instructions laid down in this regard are followed by the Price Collectors. For this purpose, he is required to visit the markets unannounced and check prices on sample basis. He also collects prices independently from the markets and compares to those collected by the Price Collectors.  
The Chief Statistical Officer of Regional office also undertakes field checking of price collected by the price collectors. Senior Officers also carryout field inspections.
  Editing/Checking Of Price Schedules At Headquarter  
  Price data are checked and scrutinized at the headquarters to ensure maximum accuracy. In the event of any doubt or abnormal variations, clarification is immediately obtained from the price reporting centers.  
  Calculation Of Average Prices At Market, City And National Level.  
  For each item, four quotations from different shops in a market are obtained. Average of these four quotations is taken as a representative price for that market in a city.  
The city average price for each item is obtained by averaging its prices in all the selected markets of the city.
  The National average price of an item is obtained by taking the average of its price in all the 35 cities or all the cities covered in CPI.  
  WEIGHTS  
Data collected through Family Budget Survey provide the details of commodity-wise expenditure of households of different occupational categories and income groups. The results of Family Budget Survey provide the average percentage expenditure of households on commodities for each occupational category of employees and for each income group in each city. These average percentage expenditures on commodities and commodity groups are called weights and used in the computation of the CPI. These weights are different for different occupational categories and income groups. Example of derivation of weights and combining the same on Pakistan basis are given below:
  Example for computation of weight of beef (Lahore) Annexure-I  
Income
Group		 Number of
Households
Surveyed		 Expenditure
on Beef		 Expenditure
on all items		 Income group
Weight
(Col.3/Col4)x100
1 2 3 4 5
I 113 4299 326601 1.3163
II 605 41603 2674345 1.5556
III 2418 223207 19385818 1.1514
IV 1049 102796 20953097 0.4906
Total 4185 371905 43339861 0.8581
  Example for computation of weight of beef (national Level) Annexure-II  
Income
Group		 Number of
Households
Surveyed		 Expenditure
on Beef		 Expenditure
on all items		 Income group
Weight
(Col.3/Col4)x100
1 2 3 4 5
I 2160 111422 5839434 1.9081
II 8312 778920 35928066 2.1680
III 22307 3505754 175042646 2.0028
IV 7927 1645074 154859653 1.0623
Total 40706 6041170 371669799 1.6254
  Formula Used For Computation Of Index  
Laspeyre's formula as given below is being used for the computation of CPI.

                                             ln  =      Σ (Pn/Po) x wi    x  100
                                                              Σ wi

Where        ln = CPI for the nth period
                 Pn = price of an item in the in the nth period
                 Po = price of an item in the base period
                 wi = weight of the ith item in the base period = Po x qo / Σ PoxQo
                Σwi = Total weight of all items.
  Computation Of CPI : An Illustration  
The computation of CPI can be illustrated with the help of an example. Suppose we want to calculate index of pulses for the month of February, 2002. The same is computed as under:-
COMPUTATION OF CPI
Item Unit Base Price
 Po		 Price Feb.02
 Pn 		 Weight

 W		 Price relative (Pn/P0) Weighted Price
 relative
 (Pn/P0) x W
Moong Pulse Kg. 29.91 51.23 0.2230 1.7128 0.3820
Mash Pulse Kg. 45.01 69.81 0.2017 1.5510 0.3128
Masoor Pulse Kg. 36.23 54.00 0.2214 1.4905 0.3300
Gram Pulse Kg. 28.99 40.87 0.4272 1.4098 1.6023
Total       1.0733   1.6270

As per formula
                               ln =    Σ (Pn/Po) x wi  x 100
                                               Σwi

                                 =  1.6270  x 100 = 151.59
                                      1.0733
  Same methodology is used for computing indices for each city and each category of employees and income group using their respective weights and prices. For preparing overall index, average prices of 35 cities and combined weights are used.  
  PRICE CHANGES AND INFLATION RATE  
  The above formula shows that the CPI is a summary measure of weighted average of relative prices (current prices over base period prices expressed in percentage). Weight for each CPI item has been developed from Family Budget Survey and represents the percentage expenditure share of a specified item in the total expenditure of the household on all CPI goods and services.  
  The impact of price changes of various items on the CPI is affected by their weights. Items with higher weights have greater impact on CPI than those with lower weights. The common man or non-professional approach of calculating inflation rate is generally based on the simple average of price changes instead of the weighted average. These two methods of computing the inflation provide significantly different results as illustrated below:-  
  Illustration

Sr. No.

Item

Average Price
(In Rupees)

 %
 Change

 Weight

Base Year Price

Weighted Price
Relatives

Sept.
2006

Sept.
 2007

Sept. 2006
(2)/(6)x (5) x 100

Sept. 2007
(3)/(6)x(5)x100

1

2

3

4

5

6

7

8

1

WHEAT FLOUR BAG

134.63

155.22

15.29

3.7724

96.21

527.8851

608.6186

2

RICE BASMATI (SUP. QLT)

36.02

56.05

55.61

0.3711

29.32

45.5901

70.9419

3

TOMATOES

37.18

35.86

-3.55

0.4734

16.75

105.0807

101.3500

4

GARLIC

55.77

51.93

-6.89

0.1725

28.03

34.3215

31.9583

5

BANANAS

30.05

30.49

1.46

0.3857

20.15

57.5200

58.3622

6

MOONG PULSE

49.82

51.23

2.83

0.2230

29.91

37.1443

38.1956

7

MASH PULSE

66.94

67.81

1.30

0.2017

45.01

29.9973

30.3872

8

MASOOR PULSE

45.13

54.00

19.65

0.2214

36.23

27.5788

32.9992

9

GRAM PULSE

40.44

40.87

1.06

0.4272

28.99

59.5929

60.2265

10

KEROSENE

38.73

38.73

0.00

0.1366

16.42

32.2200

32.2200

11

PETROL

57.89

53.89

-6.91

1.7253

30.69

325.4403

302.9535

12

DISPRIN (TABLETS)

5.05

5.81

15.05

0.0195

5.38

1.8304

2.1059

 

TOTAL

 

 

94.9176

8.1298

 

1284.2012

1370.3187

 

INDEX

 

157.96

168.56

 

  
 


1.  Simple Method          Simple Average Increase of Price Change         =    94.92  =  7.91
                                                                                                                 12

2.  Scientific Method       Increase in Price Level by Weighted Price Index = (168.56 – 157.96)  x 100 = 6.71 %
                                                                                                                               157.96

  
Uses of CPI

i. Calculation of inflation rate:-           Inflation rate = (ACPIcy – ACPIpy) x 100
                                                                                     ACPIpy
                                                      
                                                       Inflation rate in 1006-07 = (141.87 – 131.64) x 100 = 7.77
                                                                                                      131.64

ii. G.D.P. deflator                                                 =  Nominal G.D.P.  x 100    =      Σ Pn x Qn  x  100
                                                                                Real G.D.P.                          Σ Pn x Qn
 

iii. Purchasing power of money                              =    1   x 100 =      1       x 100   =  0.70
                                                                               CPI               141.87

iv. Deflation of per Capita income                          = Current per Capita income  x 100    =    4347    x 100 = 3064.07
                                                                                           CPI                                       141.87
B. SENSITIVE  PRICE INDICATOR (SPI)
INTRODUCTION
The Sensitive Price Indicator (SPI) is computed on weekly basis to assess the price movements of essential commodities at short intervals so as to review the price situation in the country. The SPI is being presented in the Economic Coordination Committee of the Cabinet (ECC).
BACKGROUND
Sensitive price indicator was originally computed with 1969-70 as base which was subsequently switched over to 1975-76, 1980-81 and 1990-91 as base year. Presently, the SPI is being computed with base 2000-2001. The methodology for computing SPI is explained in the next paragraphs.
  COVERAGE OF CITIES AND MARKETS  
  SPI is based on the prices prevailing in 17 major cities for the base year 2000-2001. The number of markets covered in each city is given below: -  
S. No. NAME OF CITY No. OF MARKET
1 Islamabad 4
2 Rawalpindi 6
3 Gujranwala 1
4 Sialkot 1
5 Lahore 7
6 Faisalabad 2
7 Sargodha 1
8 Multan 3
9 Bahawalpur 1
10 Karachi 13
11 Hyderabad 4
12 Sukkur 2
13 Larkana 1
14 Peshawar 3
15 Bannu 1
16 Quetta 2
17 Khuzdar 1
Total 53
INCOME GROUPS & OCCUPATIONAL CATEGORIES
Categories of employees are discontinued for the base 2000-2001.All categories are combined.

The SPI is being computed for the employees belonging to 4 income groups and all income groups combined as in CPI (with base 2000-2001).
  BASKET OF GOODS  
  Following 53 items are covered in the base 2000-01.
 
S. No. Item S. No. Item S. No. Item S. No. Item
1 Wheat 15 Milk fresh 29 Tea packet 43 Electric bulb (60-wts)
2 Wheat flour 16 Milk powdered (Nido) 30 Tea (prepared) 44 Match box
3 Rice basmati (broken) 17 Curd 31 Cooked beef (plate) 45 Washing soap
4 Rice irri-6 18 Vegetable ghee (tin) 32 Cooked dal (plate) 46 Bath soap (Lifebuoy)
5 Masoor pulse 19 Vegetable ghee (loose) 33 Cigarettes K-2 47 Chicken farm
6 Moong pulse 20 Mustard oil 34 Latha (coarse) 48 Gas Charges
7 Mash pulse 21 Cooking oil (Dalda) 35 Lawn 49 L.P.G.
8 Gram pulse 22 Potatoes 36 Voil 50 Electric Charges
9 Beef with bone 23 Onions 37 Shirting 51 Petrol
10 Mutton 24 Tomatoes 38 Sandal gents (Bata) 52 Diesel
11 Eggs 25 Bananas 39 Sandal ladies (Bata) 53 Telephone Charges (Local)
12 Bread plain 26 Salt 40 Chappal sponge (Bata)    
13 Sugar 27 Red chillies 41 Kerosene oil    
14 Gur 28 Garlic 42 Firewood    
 
  METHODS OF DERIVATION OF WEIGHTS  
Computation of weights of SPI are the same as that of the CPI . In the base 2000-2001, fresh developed weights through Family Budget Survey conducted in 2000-2001 are being used. The weights for each groups are combined by taking simple average of weights of 17 cities for each item. Then, all income groups are combined at Pakistan level taking simple average of weights of 4 income group.
  PERIODICITY OF PRICE COLLECTION  
Prices used in SPI relate to Thursday of each week. The field staff collects retail prices of 51 consumer items by personally contacting the shopkeeper of the markets covered in the SPI. Prices are obtained by the headquarters on telephone/fax from the concerned Field/Regional Offices on the same day.
  FORMULA USED FOR COMPUTATION OF SPI  
The formula used is the same as was explained in CPI
C. WHOLESALE PRICE INDEX (WPI)
INTRODUCTION
The Wholesale Price Index (WPI) is designed to measure the directional movements of prices for a set of selected items in the primary and wholesale markets. Items covered in the series are those which could be precisely defined and are offered in lots by producers/manufacturers. Prices used are generally those, which conform to the primary sellers realization at ex-mandi, ex-factory or at an organized Wholesale level.
BACKGROUND
  The WPI initially was computed with 1959-60 as base. Since then, continuous efforts have been made to make the WPI more representative by improving and expending its scope and coverage in terms of commodities, quotations/markets, etc. Accordingly, WPI series were computed with 1969-70, 1975-76,1980-81 and 1990-91 as base years. Presently, the WPI is being computed with 2000-01 as base.  
  COVERAGE OF CITIES AND MARKETS  
The wholesale prices are collected from the single market by the price collecting staff of FBS located at the following 18 cities:-
 
S. No. Cities S. No. Cities
1 Karachi 10 Sargodha
2 Lahore 11 Quetta
3 Faisalabad 12 Sukkur
4 Rawalpindi 13 Bahawalpur
5 Hyderabad 14 Sahiwal
6 Multan 15 Nawabshah
7 Gujranwala 16 Larkana
8 Peshawar 17 Mirpurkhas
9 Sialkot 18 Mingora

Wholesale prices of a few items are also collected from Importers/Suppliers/Merchants/Trade Associations.
  BASKET OF GOODS  
The WPI covers 425 items in the base 2000-2001. The items have been divided into five groups. The groups and number of items are given below: -
 
S. No. Commodity Group Items Weight
2000-01 2000-01
1 Food 106 42.12
2 Raw Materials 25 7.99
3 Fuel, Lighting & Lubricants 17 19.29
4 Manufactures 227 25.87
5 Building Material 50 4.73
Total 425 100.00
METHODOLOGY OF DATA C