INEbase / Consumer Price Index (CPI). Base 2001 / Methodological note of the simulated CPI series with lowered prices

Simulated Price Index series with sales

Introduction

The introduction of the Consumer Price Index 2001 System meant breaking with the index series, given the inclusion of the lowered prices in this new System. Although it is not possible to link the series via usual procedures, the INE has reconstructed the Consumer Price Indexes historic series, simulating the effect that the inclusion of the lowered prices would have had on the period from January 1961 to December 2001.

This simulated series has a 2001 base and has been taken from the official CPI series, 1992 base, supposing that the lowered prices are included in this series. For this, information on sales prices has been used, using the 2001 base for the CPI calculation.

General calculation procedure for the series

Two fundamental suppositions were used in order to create the simulated series with sales: that the sales exist and that they have been included in the CPI since 1961 and that the intensity of the sales has gradually increased since then until reaching current levels.

Furthermore, with the aim of maintaining the greatest affinity possible with the official CPI series, a limitation has been placed meaning that the variation rates of the official series' annual intermediate indexes and those of the simulated series are the same.

With these elements as a starting point, the series was obtained as continues:

Simulation of the effects of the sales on monthly rates
The influence of the lowered prices is almost totally due to sales in the clothing and footwear group. For this, for each of the months, a maximum monthly effect was established¹ and another minimum effect of this group on the general CPI, starting with its performance in the years 2002, 2003 and 2004.
Segmentation of the CPI historic series in five year periods.
The CPI series was divided in periods of five years (1961-1965, 1966-1970,...1996-2000). A simulated sales effect was applied to each five year period, that will increase as the period nears the present.
Allocation of the sales effects in the historic series.
The last five year segment (1996-2000) was allocated the maximum monthly effect obtained in point 1 and the first segment (1961-1965) was allocated the minimum effect.
The allocation involves adding the corresponding effect to each of the official monthly variation rates. In this way, for example, the maximum effect for the clothing and footwear group established in point 1 is added to the monthly rates for all the months of January in the period 1996-2000; and the minimum effect is added to the rates of the months of January in the period 1961-1965.
For the intermediate five year periods, the effects' path is shared (difference between the maximum and minimum effect) in an additional way. In this way, it is possible to achieve a sales effect that grows from 1961 to the present.
Calculation of the simulated indexes.
The indexes obtained in section 3 are changed to comply with the last limitation: the maintenance of the official variation rates of the annual intermediate indexes. The simulated indexes with sales are obtained in this way.

(1) The monthly effect is the influence of the variation in prices of an article or group of articles on the CPI's monthly variation.