Minister: CPI, methodology and inflation rate

Economy and Labor Minister Jason Hayward gave an overview of the Consumer Price Index [CPI]the methodology behind its calculation and Bermuda’s inflation rate in the House of Assembly today [June 17].

The Minister said: “This Assembly will be aware of recent media commentary on inflation in other parts of the world and concern over the accuracy of statistics produced here in Bermuda. The Government of Bermuda strongly supports the methodology used and the integrity of the data produced by the Department of Statistics.

Yesterday’s BNV interview with Minister Jason Hayward on the subject

“The Department of Statistics [DOS] uses the United Nations Consumer Price Index Manual for methodological and computational guidance. A modified Laspeyres approach is used to measure the rate of change of a fixed set of prices over time.

“The CPI calculation starts with collecting more than 3,100 price data from retail stores and household service providers. Pricing frequency varies and is done monthly, quarterly or annually. Once the prices of goods and services have been collected, they are checked and cross-checked to ensure the validity of the data used in the CPI calculations. Prices are compared to price data from the previous month and year to monitor price fluctuations and maintain consistency.

“In 2013, the rent sector of Bermuda’s CPI basket accounted for the largest share or weight of household spending among the nine CPI sectors. [26.7]. This sector tracks the price of a basket of rent-controlled and non-rent-controlled housing units, property tax, repair rates, cost of materials, and home contents insurance.

“Currently, rents are stable. The weighting of the rental sector has a stabilizing effect on the overall inflation rate, similar to other sectors such as food, which increases month on month.

“In response to the ongoing dialogue comparing Bermuda’s inflation to that of other countries, it is imperative to take into account the differences in weighting between sectors. Moreover, the factors that influence the movement of inflation are specific to each country.

“Historically, Bermuda has conducted an HES approximately every 10 years. The last survey was conducted in 2013 and previous surveys were conducted in the years 2004, 1993, 1982 and 1974; the data collection period varied from six weeks to four months.

“The DOS has been informed that international best practice has changed and that the Household Expenditure Survey should now be conducted every five years instead of ten.”

The Minister’s full statement follows below:

Mister President,

I have the pleasure today of speaking before this honorable House to give an overview of the consumer price index [CPI]the methodology behind its calculation, and to talk generally about Bermuda’s inflation rate.

Mister President,

This House is aware of recent media commentary on inflation in other parts of the world and concern about the accuracy of statistics produced here in Bermuda. The Government of Bermuda strongly supports the methodology used and the integrity of the data produced by the Department of Statistics.

Mister President,

consumer price index [CPI] is a statistical tool used to measure the rate of inflation and changes in the general price level of consumption of goods and services by private households. The index measures price movements of a given quality and quantity of goods and services. The combination of goods and services comprising the index is figuratively referred to as a “shopping basket”.

Mister President,

In constructing the basket, thousands of selected goods and services were organized by product and service type, then divided into sub-components and assigned to one of the following nine major expense groups or aggregate indices:

  • 1. Food;
  • 2. Rent;
  • 3. Clothing and footwear;
  • 4. Tobacco and alcohol;
  • 5. Fuel and electricity;
  • 6. Household items, services and supplies;
  • 7. Transport & Vehicles;
  • 8. Education, leisure, entertainment and reading; and
  • 9. Health and personal care.

Mister President,

The Department of Statistics [DOS] uses the United Nations Consumer Price Index Manual for methodological and computational guidance. A modified Laspeyres approach is used to measure the rate of change of a fixed set of prices over time.

The CPI calculation begins with the collection of more than 3,100 price data from retail stores and household service providers. Pricing frequency varies and is done monthly, quarterly or annually. Once the prices of goods and services have been collected, they are checked and cross-checked to ensure the validity of the data used in the CPI calculations. Prices are compared to price data from the previous month and year to monitor price fluctuations and maintain consistency.

Mister President,

It is imperative to keep the basket “frozen” in terms of the quality of the items it contains. During the life of the CPI shopping basket, the sale of some goods and services in the basket will be interrupted and the qualitative composition of others will change. The need to replace missing elements is common to all KPIs since the characteristics of certain elements change frequently while the production or sale of others is interrupted as such, the methodology takes this event into account, and in Bermuda, we substitute items in the basket of goods.

More details on the Department’s CPI methodological procedures are described in the publication Understanding the Consumer Price Index which is available on the Department’s portal page https://www.gov.bm/bermuda-business -statistics.

Mister President,

The base period for the current Bermuda CPI is April 2015 and it is a reference point to measure the change in prices of goods and services. Bermuda’s current CPI basket of goods and services is taken from the 2013 Household Expenditure Survey, which collected the income and expenditure profiles and levels of all residents.

Mister President,

The survey has three main objectives:

  • 1. First, to collect household income to provide an indication of the standard of living of Bermuda residents;
  • 2. Second, update the baseline estimates of consumer spending to include them in the calculation of gross domestic product; and
  • 3. Third, obtain data on current household expenditures on goods and services to reflect the spending patterns of Bermuda residents for CPI reweighting purposes.

Mister President,

The EME provides detailed weekly expenditure data necessary for an assessment of household spending patterns. The CPI reweighting process reviews items in the shopping cart to include new items or remove items that are no longer meaningful.

The average weekly household expenditure totals for major consumption groups, as reported in an EME, reflect the expenditure weights, or relative expenditure shares, that comprise the nine sectors of the current CPI consumption basket.

Rental sector weighting

Mister President,

In 2013, the rents sector of Bermuda’s CPI basket accounted for the largest share or weight of household spending among the nine CPI sectors [26.7]. This sector tracks the price of a basket of rent-controlled and non-rent-controlled housing units, property tax, repair rates, cost of materials, and home contents insurance.

Currently rents are stable. The weighting of the rental sector has a stabilizing effect on the overall inflation rate, similar to other sectors such as food, which increases month on month.

Mister President,

If there is no significant movement in the most weighted sectors, the inflation rate will remain moderate. Sectors are weighted as follows:

Changes in CPI component weights

2013 2004 1993
Components Weight Weight Weight
Food 115 146 152
Lease 267 325 276
Clothes and shoes 25 37 47
Tobacco & spirits 31 20 21
Fuel and Power 39 30 33
Household items, services and supplies 116 140 175
Transport & vehicles 130 139 135
Education, leisure, entertainment and reading 147 71 80
Health and personal care 130 92 81
All items 1000 1000 1000

Recent controversies

Mister President,

In response to the ongoing dialogue comparing Bermuda’s inflation to that of other countries, it is imperative to take into account the differences in weighting between sectors. Moreover, the factors that influence the movement of inflation are specific to each country.

Historically, Bermuda has conducted an HES approximately every 10 years. The last survey was conducted in 2013 and previous surveys were conducted in the years 2004, 1993, 1982 and 1974; the data collection period varied from six weeks to four months.

CARTAC magazine

Mister President,

In response to a request from the Department of Statistics [DOS]in June 2022 the Caribbean Regional Technical Assistance Center [CARTAC] led a technical assistance mission to improve the CPI, including the design and implementation of a household expenditure survey [HES] for estimating expenditure weights.

DOS has been informed that international best practice has changed and that the Household Expenditure Survey should now be conducted every five years instead of ten. In addition, CARTAC recommended that DOS collect data over a 12-month period to better understand seasonal spending patterns.

New Household Spending Survey

Mister President,

It is expected that the Department will begin collecting data on a new Household Spending Survey within the next 12 months. However, a revised CPI ‘basket’ and expenditure weights will not be available until approximately 2 years after data collection ends, which will see the base year change from 2015 to 2025.

Between June 6 and 17, 2022, the Department is participating in a remote technical assistance mission with CARTAC to acquire additional advice on the CPI and the HES.

Mister President,

I would like to thank Director Melinda Williams and her team of Technical Officers for their hard work and dedication during these difficult times.

Thank you, Mr President.

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