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The Consumer Price Index

Conducted by the Business Division of the Department of Statistics, the Consumer Price Index (CPI) is a statistical tool used for measuring changes in the general level of prices of consumer goods and services purchased by private households. It is the appropriate economic instrument to use when determining the effect of changes in retail prices on the average household budget and is one of the most used economic indicators in Bermuda.

Structure of the CPI
The index measures price movements of a given quality and quantity of goods and services. The mix of these consumer goods and services comprising the index, are figuratively thought of as a “shopping basket.” In constructing this “shopping basket”, the selected goods and services are organized first by commodity type. They are then divided into subcomponents and assigned to a major expenditure group. The Bermuda CPI is structured into nine expenditure groups or sectors:

  • food
  • rent
  • clothing and footwear
  • tobacco and liquor
  • fuel and power
  • transport and vehicles
  • household goods, services, and communications
  • education, recreation, entertainment and reading
  • health and personal care

Since the CPI is calculated using a fixed “shopping basket” of goods and services, it must be updated occasionally to ensure its continued relevancy to the actual spending habits of households. For this reason, the Department of Statistics periodically undertakes the Household Expenditure Surveys (HES) to collect information on which items households spend their money on. This update allows for new goods or services that have become significant in household budgets to be included in the ‘basket,’ and other items upon which household spending has waned to be downgraded or excluded.

The average amount spent by all households in the HES on individual items in the ‘basket’ are added together to obtain a total cost.  Once the ‘basket’ has been developed, the quality and quantity of the items in the ‘basket’ are maintained.  However, the total cost of this ‘fixed basket’ will vary from one period of time to another, as the prices of the items in the ‘basket’ change. Price changes resulting from the ‘fixed basket’ are defined as ‘pure’ price movements. This is what the CPI measures. Comparing the all-items index number in one month with the all-items index of a previous month gives the percentage change in the cost of purchasing the contents of the ‘shopping basket’.

CPI Data Collection
The computation of the monthly CPI begins with the collection of price data from retail stores and household service providers.  Once the prices of goods and services have been collected, they are scrutinized to ensure validity of the data being used in the CPI calculations.  Prices are compared with the previous month’s price data in an effort to monitor price fluctuations and maintain consistency from month to month.

Understanding the Consumer Price Index 

The Consumer Price Index (CPI) Report

The CPI report is released each month.

 

 

 

 

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