Impact of the COVID-19 on the index calculation and the measurement of inflation

Consumer prices
image

Impact of the COVID-19 on the index calculation and the measurement of inflation

The COVID-19 outbreak has led to several measures, such as restrictions in the movement of people and the closure of outlets. An explanation of how these measures are currently methodologically incorporated into the consumer price index (CPI) and the harmonised index of consumer prices (HICP) is given here below.

The principles applied and the explanations described in detail below for the various product groups are in line with the methodological recommendations drawn up by Eurostat in consultation with the National Statistical Institutes (Statbel in Belgium) and are available here.

The impact of the COVID-19 is very limited this month. Indeed, in April, imputations were still necessary for about 26.5 % of the basket. In May, this number had already decreased to 15.9 % and has dropped further to 3.6 % in June.

1. General principles

The general principles on which the index calculation is based in the current situation are the following:

  • Stability of the weights of the indices published
  • Publication of indices for all product groups in the consumer price index
  • Minimizing the number of imputed prices

Every year, the weight of the product groups in the consumer price index is largely based on the estimated average consumption expenditure of the previous year. These weights are kept constant throughout the year. Monthly fluctuations are never taken into account. For the reasons mentioned above, this is not the case now. Under normal circumstances, there is for example little consumption for amusement parks in certain months.

The publication of all indices ensures that higher levels can be calculated from lower published levels and that the aggregation of the consumer price index remains consistent.

Minimizing the number of imputations (= taking into account missing actual prices using the most appropriate replacement values) ensures that missing prices are replaced as much as possible by actual prices, so that the measurement of inflation remains based on real prices. When imputations are used, these should be also be self-correcting when actual prices become available again.

2. Temporary suspension of physical field price collection

Field price collection in outlets for the CPI and the harmonised index of consumer prices (HICP), and its impact, has been greatly reduced since the switch to big data (scanner data, web scraping, administrative data). At the same time, since 2014, the share of field price collection has decreased from about 64 % of the basket weight to about 32 %.

In order to protect our surveyors’ health and not to take the place of customers, it has been decided to temporarily suspend the field price collection. Prices are currently collected via a survey carried out per telephone or online, and therefore no longer on site.

3. Sectors with no seasonal pattern that are completely closed

For sectors that are currently almost completely closed (e.g. travels or cinemas), there are currently no consumption expenditure anymore. In these cases, no price observation can take place.

For sectors with no seasonal pattern in the monthly pricing (e.g. cinema, sauna, etc.), the last available prices were simply carried forward. Given that in normal circumstances these prices also vary little from month to month, it is more than likely that these prices will also be the prices applied when the sectors can reopen. The same principle is also applied in normal times, e.g. prices at the end of the football season are carried forward until the beginning of the new football season. For sectors where it is currently difficult to collect prices from an alternative source (e.g. jewellers), the same principle is currently applied.

Most of these sectors will reopen in July, and imputations will no longer be necessary.

4. Sectors with seasonal patterns that were completely closed

For closed sectors where monthly price changes are characterised by a seasonal pattern (e.g. travels abroad), prices cannot be carried forward, because it would lead to a break in the seasonal pattern of the index series, which would impact the year-on-year changes (inflation). Given the weight of these sectors, this would also distort the global inflation, both this year and next year.

For these sectors, prices were carried forward, but also adjusted by the monthly price change of the previous year. So this means that the monthly change of this year corresponds to that of last year, and that the inflation rates of April and May for these sectors remain similar to those of March. Most of these sectors have reopened in the middle of June. Therefore, imputations will no longer be necessary from July onwards.

5. Share of the consumer price index that is currently based on actual prices and prices carried forward (with or without a seasonal correction factor).

The share of the index basket for which the price evolution is based in May on effective price observation, prices carried forward with no seasonal correction factor and prices carried forward with a seasonal correction factor is shown here below:

  • actual price observation: 96.4%
  • prices carried forward with no seasonal correction factor: 1.4%
  • prices carried forward with a seasonal correction factor: 2.2%.

6. List of product groups that are currently affected

List of affected product groups with prices carried forward with no seasonal correction factor:

COICOP Description Remarks
09.4.1.1 Recreational and sporting services (attendance)  
09.4.1.2 Recreational and sporting services (participation)  Mostly everything, except a few exceptions such as tennis or fitness
09.4.2.1 Cinemas, theatres, concerts  
09.6.0.1 Package holidays in Belgium Nature classes only
11.1.2.0 Canteens  
12.1.1.3 Personal grooming treatments  Sauna only
12.3.1.1 Jewellery  

List of affected product groups with prices carried forward with a seasonal correction factor:

COICOP Description Remarks
09.6.0.2 Package holidays abroad  
11.2.0.2 Holiday centres, camping sites and youth hostels