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

Consumer prices

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

Because of the increase in COVID-19 infections measures were taken, such as the closure of outlets and the advice against tourist travelling. Measures which have a direct or indirect impact on the household consumption. An explanation of how these measures changes are currently treated in the calculation of the consumer price index (CPI) and the harmonised index of consumer prices (HICP) is given here below.

The principles applied above 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.

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 care of missing prices by replacing them with the most accurate replacements) ensures that missing prices are replaced as much as possible by actual prices, so that the measurement of inflation remains based on real prices. In case imputations are used, they need to be self-correcting when actual prices can be collected again.

2. Temporary suspension of local 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 price collectors’ health, it has been decided to temporarily suspend the field price collection. For sectors that are still open and where prices can normally still be collected, the survey is done per telephone or online, so no longer on site.

3. Sectors where physical outlets are closed, but consumption can take place online

For sectors where the consumption can now no longer take place in physical outlets, but still online, prices are collected online. In this way, the number of missing prices can be significantly reduced and the consumer price index still reflects the price evolution of consumption expenditure. A combination of web scraping and manual data collection is used.

4. Sectors with no seasonal patterns

For sectors that are currently completely closed (e.g. restaurants, etc.), 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, such as restaurants and hairdressers, 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. This method is also used in normal times, for instance at the end of the football season prices are carry forward until the start of the new season.

The product groups that are affected the most by this in terms of consumption expenditure are restaurants and bars.

5. Sectors with seasonal patterns

For closed and not recommended sectors where monthly price changes are characterised by a seasonal pattern (hotels, travels, airplane tickets, etc.), 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 have been 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 November for these sectors are similar to those of October.

6. 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 currently based on actual price observation, prices carried forward with a seasonal correction factor and prices carried forward with no seasonal correction factor is shown here below.

  • Actual price observation: 89,4%
  • Carry forward without a seasonal correction factor: 7,0%
  • Carry forward with a seasonal correction factor: 3,6%

7. List of product groups that are currently affected

List of impacted product groups with carry-forwarded prices without seasonal correction

COICOP Description Remark Recreational and sporting services - Attendance Recreational and sporting services - Participation  Except swimming pools Cinemas, theatres, concerts Package domestic holidays Only forest classes Restaurants, cafés and dancing establishments Except take-away

List of impacted product groups with carry-forwarded prices with seasonal correction

COICOP Description Remark Passenger transport by train Only international train tickets are impacted International flights Package domestic holidays Except forest classes Package international holidays Hotels, motels, inns and similar accommodation services Holiday centres, camping sites, youth hostels and similar accommodation services