The official index, the Colombo Consumers’ Price Index (CCPI), is to be revised next year in a bid to capture changing spending patterns, a senior official of the government’s statistics department said, a process to be carried out every five years through a household income and expenditure survey in the Greater Colombo area.

Census and Statistics Department deputy director D C A Gunawardena said the department was finalising an income and expenditure survey for 2006/07 which would be the base year for the revised CCPI.

"Expenditure behaviour keeps changing, so in line with internationally accepted practices, we have decided to revise the CCPI every five years and the statistics department would introduce a revised CCPI next year," Gunawardena told journalists last Friday.

"We hope to introduce the revised CCPI by February next year and there will be a six month trial run before it becomes official," he said afterwards.

The original basket of goods captured in the CCPI was based on an expenditure survey carried out in Colombo in 1952 and was the official index to measure changes in prices. This index was revised in 2008 with the base year being 2002 where a household expenditure survey was carried out in the Greater Colombo area.

Changing consumer patterns…

Food items consisted of 68.3 percent of total expenditure based on the 1952 survey. In the 2000 base year CCPI currently in use, food items are given a weight of 46.71 percent.

Expenditure on Communication was given more weight in the 2002 CCPI from the 1952 index—increasing the share to 4.42 percent from 0.16 percent; Transport and electricity expenditures were given higher weights as well—9.47 percent from 1.76 percent and 4.09 percent from 0.43 percent.

Expenditure on alcohol and tobacco was omitted from the 2002 base to reflect the government’s policy on alcohol and tobacco but economists argue that by doing so, a more realistic expenditure pattern could not be captured.

Understating inflation…

When the revised CCPI with the 2002 base year was introduced as the official index early in 2008, the 1952 index was simultaneously published for a while.

According to available data, in March that year the revised index indicated the year-on-year inflation rate to be 23.8 percent where as the former index showed inflation to be at 28.1, fuelling suspicions of trade unionists that the revised index was an attempt to understate inflation.

According to the Central Bank the annual average change in inflation based on the 1952 index for each year from 2004 to 2007 was 7.6 percent (’04), 11.6 percent (’05), 13.7 percent (’06) and 18.8 percent (’07) respectively.

But according to the revised index, annual average change in inflation figures stood at 9 percent (’04), 11 percent (’05), 10 percent (’06) and 15.8 percent (’07) respectively.

But the Department of Census and Statistics and the Central Bank constantly maintained that the revision was necessary in order as 1952 expenditure patterns would be much different to those of 2008.

The inflation index becomes a further cause for contention as the Cost of Living allowance (COLA) paid to workers is based on the CCPI.

"We have nothing to do with calculating the COLA as it is decided upon by the employers and employees in their collective agreements," Gunawardena said, "But the fact of the matter is, businesses are finding it difficult to pay higher rates for each CCPI unit."