When Statistics SA presented its three-year work plan to parliament's finance portfolio committee last week, I announced that the reweighted consumer price index (CPI) would first be published in February 2009 (for the January 2009 CPI).
The CPI, together with gross domestic product estimates, is probably Stats SA's highest profile regular statistical series, invariably catching the attention of the media, economists, business people, investors, analysts, policy makers, legislators and the general public.
A number of elements have to be present to measure the monthly and annual rate of change in the CPI. At minimum, a basket of goods has to be identified and categorised so that the price changes for each of the goods specified can be collected and measured.
In addition, a weight has to be attributed to each of the categories of goods, so that its impact on price changes can be measured relative to price changes in other categories.
The CPI weights represent the distribution of expenditure on goods and services of an average South African household. Periodic reweighting ensures that the CPI reflects changing trends in consumer buying patterns.
Weights, therefore, represent the relevant importance of each indicator product.
The weight of a product is calculated by dividing the total expenditure by households on that product by the total expenditure on all goods and services by households.
The income and expenditure survey (IES), which was conducted between September 2005 and August last year, provides the data for calculating these weights.
Stats SA will use latest IES data to identify appropriate weights for the different CPI categories such as food, transport and housing, as well as to determine which products should form part of the CPI basket. Sales data from major retailers are applied in selecting appropriate products.
The new basket of goods should be finalised by September. Because the CPI publishes year-on-year price changes, it is necessary to collect prices on all additions to the current basket for 12 months before the new basket can be published as the official CPI.
Next year, Stats SA will continue to collect prices and publish the CPI on the basis of the current basket and weights. It will also collect, but not publish, prices of products that appear only in the new basket. This exercise will culminate in the publication of the January 2009 CPI, the first to be published on the basis of the new basket and new weights.
As part of the planned revision of the CPI, changes in the classification of groups of products are also being undertaken. The current classification system of the CPI is the International Trade Classification (ITC).
However, the ITC is no longer used or maintained as the international standard for CPI classifications, having been largely replaced by the Classification of Individual Consumption According to Purpose (Coicop), which has consolidated classification into 12 main product groups: food and non-alcoholic beverages; alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity, gas and other fuels; furnishings, household equipment and routine maintenance of the house; health; transport; communication; recreation and culture; education; restaurant and hotels; and miscellaneous goods and services.
A careful mapping of the current classification of products to a new classification has been completed, and current CPI publications report according to Coicop and ITC.
Reweighting and revising the basket of products used to measure price changes and modernising the system for product classification are just some of the ongoing improvements in the quality of the CPI.
Others include refreshing the sample of retail outlets used to collect prices; revising the geographical reporting basis of the CPI; and improving methodologies and data sources for collecting and calculating various subindices of the overall CPI.
Understanding the way the CPI is calculated, including the issues of reweighting, revising the basket and rebasing of the reference year, is not all that simple.
These are, however, routine and necessary revisions.
The UN, the International Monetary Fund and the International Labour Organisation, for example, recommend that the CPI is reweighted on the basis of consumer expenditure every five years.
Put simply, this results in more accurate statistics of better quality.