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Weight structure of the New Colombo Consumers’
Price Index
Consumer Price Indices ought to capture the general price level
of all consumption goods and services available in a country. However,
since it is difficult to measure prices of all consumption goods
and services, the methodology of estimating such Consumer Price
Indices involves choosing a representative consumer, enumerating
his or her consumption habits, recording prices of goods and services
consumed by the representative consumer and updating the consumer
habits, periodically.
The Colombo Consumers’ Price Index (CCPI), the widely used
index to measure the general price level in Sri Lanka, came under
heavy criticism due to several shortcomings. The index does not
adequately represent consumption behavior of all households, since
it was based on consumption habits of working class families in
1952. The weight structure of the CCPI was not revised to capture
the changing consumer habits.
To overcome these shortcomings of the CCPI, the Department of Census
and Statistics (DCS) constructed the New Colombo Consumers’
Price Index (CCPI(N)), based on the consumer expenditure pattern
as reflected by their latest Household Income and Expenditure Survey
conducted in 2002. According to this survey, the household consumption
patterns have undergone substantial changes during the last 50 years,
with the improvement in the income levels and also the changes in
tastes and consumer preferences over time.
The
salient features of the weight structure of this CPI in comparison
to the old CCPI are given in Table 1. The most notable feature is
that the share of expenditure on food had drastically fallen to
47 per cent from that of 68 per cent. In the old CCPI, the ‘Housing,Water,
Electricity, Gas and Other Fuels’ sub group was under-represented.
For example, it did not contain Liquefied Petroleum Gas (L.P. Gas)
and the weight for electricity was insignificant. It also did not
contain petrol and diesel, but gave a higher weight to kerosene.
The new index has included more utilities and furthermore has included
greater weights on other services such as communication and education.
Thus, the CCPI(N) is based on more representative consumer habits
and a wider spectrum of goods and services.
It should also be noted that the new CPI excludes the ‘Alcoholic
Beverages, Tobacco and Narcotics’ category. This category had
a weight of around 1.8 per cent in the 2002 survey. However, it
was excluded from the CCPI(N) due to the fact that those items are
subject to heavy taxation to discourage consumption. Inclusion of
items with such heavy taxation distorts the resulting measure of
consumer inflation.
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