How does the corona situation affect CPI?
The outbreak of the coronavirus and the Government restrictions have consequences for both data collection and compilation of the Consumer Price Index (CPI). International recommendations on appropriate methods have been established in this extraordinary situation.
Eurostat (the statistical office of the European Union) has in close cooperation with Statistics Norway and other National Statistical Institutes (NSIs) made international recommendations on how the consequences of the corona epidemic should be dealt with in the respective CPI of each country. The Norwegian CPI is following these principles:
- The annual consumption expenditure shares (weights) in the March CPI are kept unchanged
- Missing prices in March are, as far as possible, imputed based on available prices and follow established rules for the treatment of missing prices
- If strict regulations continue after Easter and contribute to non-availability of certain services, these services will be taken out of the April CPI
Changed consumer pattern?
From March 12, 2020 strict comprehensive national restrictions to prevent the coronavirus from spreading were introduced. Kindergartens, schools, theater, cinemas are closed and cultural- and sport arrangements are forbidden. Personal services (e.g. hairdressers) are required to close. Due to closed borders and limited domestic travel, air traffic as well as travel and accommodation services are heavily reduced. Households are strongly encouraged to stay at home most likely affecting the general purchase of goods and services. Many physical stores are closed and/or have laid off their employees while online stores may experience higher sales.
The CPI consists of a basket of goods and services with consumption expenditure shares (weights) that are kept fixed throughout the calendar year. The fixed weights reflect the importance of the different goods and services of the household consumption. It is decided not to change the CPI weights for March index even though it is likely to expect that there have been significant (temporarily) changes in the household consumption. With the exception of services that must stay closed and where it is reasonable to assume close to zero consumption during the last two weeks of March, there are no available data providing information on how the household consumption has changed.
How is the data collection affected?
In March the share of missing prices is slightly higher than normal, mainly affecting services related to travel, accommodation, bars and restaurants. A large share of the CPI is however based on transaction data which is regularly delivered to Statistics Norway. The data covers, among others, food and beverages, pharmaceutical and other medical products and petrol which are consumer groups that are not restricted by national regulations. CPI data is also collected through web questionnaires.
Services that are closed due to national restrictions do not have any sales, and as long as they are closed, prices should not be reported. Stores which are not required to close may still have challenges reporting prices due to strong decreases in sales and possible layoffs.
Despite a slight increase of missing prices in March, the number of reported prices is still regarded as acceptable as a large share of the prices was reported during the first two weeks of March when sales where as normal. It is expected that the number of missing prices will increase in April and coming months given that the strict restrictions continue. This may increase uncertainty in the CPI, especially indices at lower levels. For certain consumer groups replacing prices of products from physical stores to prices of products available online may be a solution.
Missing prices – what is standard procedure?
CPI consists of a basket of goods and services. Normally, each month there will be missing prices due to for instance products being temporarily sold out. Missing prices will then be imputed based on the price development reported from stores where the product is available. Prices may also be missing due to seasonal patterns. In those cases, it is not possible to use other available products to impute prices. In those cases, it is recommended to use the price development of an aggregated consumer group. For instance, in case of missing all prices of mango, the price development of the consumer group fresh fruit may be used.
It is very rare that services are unavailable for purchase due to national restrictions or stores experiencing extreme decreases in sales as we have experienced for travel related services during second half of March. Based on collected prices from the first part of March, Statistics Norway does have sufficient number of prices also for services that are closed, and thus standard imputation procedures are followed.
Price index of airfares affected
Due to the corona situation travel is strongly reduced and many flights have been cancelled. Airfares are collected up to several months ahead of departure and this is also the case for March index.
As air traffic went more or less as normal during the first two weeks of March, the collected prices for domestic and international flights are used for this period. The already collected prices covering the last two weeks of March are however not used as Statistics Norway considers these prices to be unrepresentative.
CPI for April
Given that the national restrictions continue also after Easter, missing prices are likely to increase in April. In many cases it may not be possible to use an aggregated consumer group as appropriate indicator of the price development as no other groups are regarded as substitutes. This will require special treatment of services (as well as some goods) in the CPI.
One possible solution is to carry forward the last observed prices and restart the price collection when the services reappear for purchase. This is equivalent to the assumption that the services are consumed, but no price change is registered. Another more preferred method is to assume that the consumption is not available at all. Then the price development of all other available goods and services can be used as an indicator for the services that are not consumed. Such a solution implicitly reallocates the consumption to other goods and services in the CPI, i.e. we reallocate the weights to the available goods and services, equivalent to excluding these services from the CPI. It is likely that not all the detailed consumer groups of the CPI will be made available to users in the April index, published on May 11.
This article refers to national restrictions taken by the Norwegian authorities on March 12. This article was finalized April 7, at 2 PM, that is, before the notified press conference where the authorities informed about possible continuation of the national restrictions.