Development of Methodology for Geographic Price Indices
Author: Winecito L. Tan, Lina V. Castro, Virginia N. Gañac, Milanda O. Paita, Joy Doris A. Ocaya, Ma. Victoria M. Villarba, Rosie V. Biona, Gene V. Lorica, Teresita E. Valerio, and Ceferino S. Sinsioco
The Consumer Price Index (CPI) is widely used as a tool for measuring price changes over a period of time of a fixed basket of goods and services commonly consumed by the population. It has served a variety of purposes mainly for adjustments in transaction flows in the economic system. The present series on CPI accounts only for price differentials in the aggregate for the country for all income groups and within regions. There is a felt need for expansion of the indices to reflect both spatial and time elements in the understanding of subnational economic behavior. Thus, the Statistical Research and Training Center (SRTC) jointly with the National Statistics Office (NSO) conducted a study on the development of the methodology for geographic price indices (GPI). In this study, 1985 was taken as base year and the National Capital Region (NCR) as base region. The market basket as well as the commodity weights were extracted from the 1985 Family Income and Expenditure Survey (FIES). Four methods were followed from Laspeyres and Paasche indices, with further derivations of the formulae of the indices as expressed in price relatives and expenditure weights. The resulting indices can be interpreted as differences between the current prices in the region with NCR base year prices or with NCR current prices, for the quantity of commodities consumed in 1985 for NCR or for the region. In view of the voluminous computations involved, the market basket was confined to the food, beverages, and tobacco group. Generation of the indices using the four methods were applied on the May 1990 price data, making use of the NSO survey results as well as the 1985 FIES. A systems operations manual is provided to guide in the production of the GPI series following the suggested methods. It is recommended that future price and expenditure surveys should consider computer system requirements of the GPI processing such as the coding and weighting scheme as well as proper description of commodities and designated substitutes among regions and provinces. Meanwhile, utilization and validation of the geographic price indices are encouraged in order to come up with the most structurally sound methodology and relevant results for varied purposes of price and quantity statistics.