Statement on the Bermuda Consumer Price Index Methodology and Inflation

17 June, 2022

Mr. Speaker,

It is my pleasure today to rise before this Honorable House to provide an overview of the Consumer Price Index (CPI), the methodology behind its calculation, and to talk generally about Bermuda’s rate of inflation.

Mr. Speaker,

This House will be aware of recent comments in the media about inflation in other parts of the world and the concern regarding the accuracy of the statistics produced here in Bermuda. The Government of Bermuda stands firmly behind the methodology used and the integrity of the data produced by the Department of Statistics.

Mr. Speaker,

The Consumer Price Index (CPI) is a statistical tool used for measuring the rate of inflation and changes in the general level of prices of consumption of goods and services by private households. The index measures price movements of a given quality and quantity of goods and services. The combination of goods and services comprising the index are figuratively referred to as a ‘shopping basket’.

Mr. Speaker,

In constructing the basket, thousands of selected goods and services were organized by commodity and service type and then divided into sub-components and assigned to one of the following nine major expenditure groups or aggregate indices:

  1. Food;
  2. Rent;
  3. Clothing & Footwear;
  4. Tobacco & Liquor;
  5. Fuel & Power;
  6. Household Goods, Services & Supplies;
  7. Transport & Vehicles;
  8. Education, Recreation Entertainment & Reading; and
  9. Health & Personal Care.

Mr. Speaker,

The Department of Statistics (DOS) uses the United Nations Consumer Price Index Manual for methodological and computational guidance. A modified Laspeyres approach is used to measure the rate of change in a fixed set of prices over time.

The computation of the CPI begins with the collection of over 3,100, price data from retail stores and household service providers. The frequency of pricing varies and is conducted either monthly, quarterly or annually. Once the prices of goods and services have been collected, they are verified and cross-checked to ensure validity of the data being used in the CPI calculations. Prices are compared with the previous month’s and year’s price data to monitor price fluctuations and maintain consistency.

Mr. Speaker,

It is imperative to maintain the ‘fixed’ shopping basket in terms of the quality of items it contains. Over the life of the CPI shopping basket, the sale of some goods and services in the basket will be discontinued and the qualitative composition of others will change. The need to replace missing items is common to all  CPIs since the characteristics of some items evolve frequently while the production or sale of others is discontinued as such, the methodology accounts for this occurrence, and in Bermuda we do substitute items within the basket of goods.

More details, of the Department’s CPI methodological procedures is outlined in the publication Understanding the Consumer Price Index which is available on the Department’s portal page https://www.gov.bm/bermuda-business-statistics.

Mr. Speaker,

The base period for the current Bermuda CPI is April 2015 and it is a reference point for measuring price change of goods and services. Bermuda’s current CPI basket of goods and services is derived from the 2013 Household Expenditure Survey which collected income and expenditure patterns and levels for all residents.

Mr. Speaker,

The Survey has three main objectives:

  1. Firstly, to collect household income to provide an indication of the living standards of Bermuda’s residents;
  2. Secondly, to update consumer expenditure benchmark estimates for inclusion in the Gross Domestic Product calculation; and
  3. Thirdly, to obtain current households’ expenditure data on goods and services to reflect spending habits of Bermuda’s residents for the purposes of reweighting the CPI.

Mr. Speaker,

The HES provides detailed weekly expenditure data required for an assessment of household spending patterns. The CPI re- weighting process reviews items in the shopping basket with a view to including new items or removing items that are no longer significant.

The average weekly household spending totals for the major consumption groups, as reported in a HES, reflect the expenditure weights, or relative spending shares, that comprise the nine sectors of the current CPI shopping basket.

Rent Sector Weighting

Mr. Speaker,

In 2013, the rent sector of Bermuda’s CPI basket accounted for the largest household spending share or weight among the nine sectors of the CPI (26.7). This sector tracks the price of a basket of dwelling units subject to rent-control and units not subject to rent control, land tax, repair rates, material cost and home content insurance.

Currently rents are stable. The weighting of the rent sector is causing a stabilizing effect on the overall rate of inflation as other sectors such as food which is rising month-to-month.

Mr. Speaker,

If there is not significant movement in the sectors with the largest weights the inflation rate will remain moderate. The sectors are weighted as follows:

Changes in Weights of Components of the CPI

 

2013

2004

1993

Components

Weights

Weights

Weights

Food

115

146

152

Rent

267

325

276

Clothing & footwear

25

37

47

Tobacco & liquor

31

20

21

Fuel & power

39

30

33

Household goods, services &

supplies

116

140

175

Transport & vehicles

130

139

135

Education, recreation

entertainment & reading

147

71

80

Health & personal care

130

92

81

All Items

1000

1000

1000

Recent Controversies

Mr. Speaker,

In response to the ongoing dialogue comparing Bermuda’s inflation to that of other countries, it is imperative to account for differences in weighting across the sectors. Additionally, the factors that impact the movement of inflation are country specific.

Historically, Bermuda has conducted an HES approximately every 10 years. The last survey was conducted in 2013 and previously, surveys were held in the years 2004, 1993, 1982 and 1974; the data collection period ranged from six weeks to four months.

CARTAC Review

Mr. Speaker,

In response to a request from the Department of Statistics (DOS), in June 2022 the Caribbean Regional Technical Assistance Centre (CARTAC) conducted a technical assistance mission to improve the CPI including the design and conduct of a Household Expenditure Survey (HES) for the estimation of expenditure weights.

The DOS has been advised that international best practice has shifted and that the household expenditure survey should now be conducted every five years instead of ten. In addition, CARTAC recommended that the DOS conducts data collection over a 12 month period to better capture seasonal spending habits.

New Household Expenditure Survey

Mr. Speaker,

It is anticipated that the Department will commence data collection on a New Household Expenditure Survey within the next 12 months. However, a revised CPI “shopping basket” and expenditure weights will not become available until approximately 2 years after the data collection is completed which will see the base year shift from 2015 to 2025.

Between 6th and 17th June, 2022, the Department is participating in a remote technical assistance mission with CARTAC to acquire further advice on the CPI and HES.

Mr. Speaker,

I would like to thank Director Melinda Williams and her team of technical officers for their hard work and dedication during these challenging times.

Thank you, Mr. Speaker.

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