2.1.2 Consumer Price Index
International Labour Office (ILO) defined consumer prices
index (CPI) as index numbers that measure changes in the prices of goods and
services purchased or otherwise acquired by households, which households use
directly, or indirectly, to satisfy their own needs and wants.
According to the National Institute of Statistic of Rwanda,
The CPI is a measure of the average change over time in the prices of consumer
items goods and services that people buy for day-to-day living. The CPI is a
complex construct that combines economic theory with sampling and other
statistical techniques and uses data collected each month to produce a timely
measure of average price change for the consumption sector of the Rwandan
economy (NISR: March 2010)
The CPI can be intended to measure either the rate of price
inflation as perceived by households, or changes in their cost of living (that
is, change in the amounts that the households need to spend in order to
maintain their standard of living).
In practice, most CPI are calculated as weighted averages of
the percentage price changes for specified set, or «basket», of
consumer products, the weights reflecting their relative importance in
household consumption in some period. Much depend on how appropriate and timely
the weights are. (ILO 2004:4).
However there is some criticism in calculation of this CPI
whereby the prices collected were not a fair sample of the prices that actually
existed for goods of equal quality. According to the Morgan (1947:29) CPI
neglect to consider the following:
1. Underreporting of prices by stores and large rise in prices
of important goods not included in the index.
2. Disappearance of low grades of goods and deterioration in
the quality of goods priced.
3. Large retail-price increase in smaller cities not covered
by the index
Structure and composition of consumer price index in
Rwanda
According to the National Institute of Statistics of Rwanda
(CPI October 2009), The CPI is a Modified Laspeyres index that covers
household consumption as it is used by national accounts. The reference
population for the CPI consists of all households living in urban areas in
Rwanda.
The household basket includes 1,136 products observed in many
places spread all over the administrative centers of all provinces in Rwanda.
All kinds of places of observation are selected: shops, markets, services, etc.
More than 29,200 prices are collected every month by enumerators of the
National Institute of Statistics of Rwanda and of the National Bank of
Rwanda.
The weights used for the new index (CPI of the Base year of
February 2009) are the result of the Household Living Conditions Survey (EICV
II) conducted in 2005-2006 with a sample of 6,900 households.
The basket used in measuring CPI by NISR is composed by the
following division of commodities:
1. Food and non-alcoholic beverages (Bread and Cereals, Meat,
Fish, Vegetables, Non-alcoholic beverages) 2.Alcoholic beverages and tobacco
3.Clothing and footwear 4.Housing, water, electricity, gas and other fuels
5.Furnishing, household equipment and routine household maintenance 6.Health
7.Transport 8.Communication 9.Recreation and culture 10.Education
11.Restaurants and hotels 12.Miscellaneous goods and services.
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