Recent changes to the clothing and footwear component of the consumer price index (CPI) have raised some interest. The annual increase in the price index for this component, reported as 10 percent of the CPI last month, is likely to lead to further discussion of this matter.
In its regular evaluation of data coherence, Statistics SA noticed that while the CPI was showing falling prices in clothing and footwear, retailers were reporting that clothing prices were increasing.
On investigation, it became evident that the clothing and footwear index was pulled down by items on clearance sales. While these items made up a small proportion of the roughly 26 000 prices collected each month, they were affecting price trends and distorting the clothing and footwear index.
Stats SA resolved to construct a new clothing and footwear index that excluded discounted prices.
However, as frequently occurs when statistical methods are revised, Stats SA faced a dilemma in deciding how to introduce this change in method. Revising historical CPI numbers was not an option, because of the widespread use of CPI in contracts and financial investments.
One option was to use the rates of change in the new "non-discounted" index and apply them to the old index. This, however, would have required substantial and risky manipulation of the compilation systems, and would still have reflected negative inflation in this index for most of this year.
Consequently, Stats SA decided to introduce the new index in January - the most transparent and decisive way of making the change.
This resulted in a jump in the index between December (on the old index) and January (using the new index). It also resulted in higher year-on-year figures than would otherwise have been the case.
The upward bias that has resulted from the change in method will last until the end of this year, rather than the indefinite previous downward bias. The upward bias is quantifiable, whereas the downward bias was not.
This June, Stats SA will release the new CPI weights - derived largely, but not exclusively, from the results of the income and expenditure survey released last month.
The release of the weights follows the publication last year of the draft CPI basket. Useful public comments were received on our proposals, enabling us to initiate the collection of price data on the new products. These prices will be used to calculate the CPI next year.
The last reweighting of the CPI took place in 2002. This time there will also be changes in the classification of the index, so certain products will move category and new products, such as restaurants, hotels and taxis, will be introduced.
Changes in statistical methodology are part of the regular cycle required to improve data quality and reflect shifts in the economy. Inevitably, these affect the coherence of time-series data and are sometimes confusing to users of statistics.
Stats SA will hold public seminars to discuss these changes in CPI methodology and help users to interpret their impact.
Change in statistical methodologies is inevitable and necessary. Clinging to outmoded ways of data collection results in accurate measurement.
Pali Lehohla is the statistician-general and the head of Statistics SA. For more information on the latest CPI release, visit www.statssa.gov.