Sources, Methods & Compilation of Consumer Price Index (CPI).

The National Accounting Wing of Bangladesh Bureau of Statistics has been

regularly compiling and disseminating the consumer price index (CPI). The CPI is
also known as cost of living index (CLI). It is very important piece of statistics used
by policy makers, planners, market participants, researchers and general public that
affect well being and decisions of all economic actors in the country.
Consumer price index: The consumer price index (CPI) endeavors to measure the
change that occurs in the cost of consuming a definite quantity of goods and services
over a period of time. The CPI measures changes in prices paid by consumers for
consumption of goods and services. CPI does not cover all household expenditure, it
excludes investment, saving and transfers.
Construction of consumer price Index (CPI): The CPIs are compiled on monthly
basis. Monthly prices of various items are used for computation of the indices. Annual
indices are also computed by averaging the 12 months indices. The reference groups
of the indices are the average urban and rural households of Bangladesh.
Three principal consumer indices (CPIs) are produced and disseminated i.e
National, all urban and all rural. The national CPI is calculated by combining the
urban and rural indices using as weights, the country-wide urban and rural households
expenditure multiplied by the total number of urban / rural households as available
from population Census data. For computing the three CPIs all goods and services
included in the index baskets were classified under eight commodity groups following
the ILO standard and recommendations of the IMF mission. The indices covered eight
commodity groups which are: (1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)

Food, beverage and tobacco

Clothing and footwear
Gross rent, fuel and lighting
Furniture, furnishings, household equipment & operation
Medical care and health expenses
Transport and communications
Recreation, entertainment, education and cultural services
Miscellaneous goods and services

Coverage and source of data: The price data are collected from the selected
markets and outlets by the trained field staff of Bangladesh Bureau of Statistics.
1

(i)

Market: For price data collection 140 markets has been selected all over the
country. The selected number of urban markets are76 and the number of
rural markets are 64. The field staff of Bangladesh Bureau of Statistics
collects the price data from 64 urban and 64 rural markets (One urban and
one rural market from each district) all over the country. The prices and
wages section of National Accounting Wing collects the price data from
selected 12 markets in different parts of Dhaka metropolitan city.

(ii)

Outlets: For each item price is collected from three selected outlets. There
are some big outlets in a market which have varieties of consumer items,
generally that type of outlets is selected to collect the price data. Prices of
different commodities and services included in the index baskets are
collected by BBS personnel from selected outlets. For example, for CPI
Dhaka SMA, 12 representative markets in Dhaka SMA have been selected.
These are big markets but not Super markets. Similarly for other areas price
data are collected from selected outlets of 64 urban and 64 rural markets all
over the country by BBS field staff. These are also big markets but not like
as Dhaka metropolitan Area markets. There are many outlets in a market,
among them three big outlets are selected to collect the price data of
individual item. The location of outlets are in different areas like as urban,
rural, District and Divisional Head quarters.

(iii) Collection Procedure: Prices are collected during the peak hours of
transaction. During the process of data collection, the price collectors are
supposed to act as a true buyer, to act and bargain like a true buyer and to
make an actual purchase. Price collectors should make sure that they are
pricing the correct product based on the product specifications in the CPI
product list. Price data are properly scrutinized in immediately after
collection.
Selection of items: The items selected should be as representative as possible.
In the case of cost of living index, the items selected should represent the
consumption habit of the people. To achieve this the total number of items are
divided into groups and subgroups and then from each group a representative
sample is selected for inclusion. Bangladesh Bureau of Statistics regularly (after
certain interval) conduct Household Income & Expenditure Survey (HIES). So
HIES data can be used for this purpose. Expenditure incurred in various items
based on HES-1995-96 was the basis of determining weights for the selection of
items in the index basket. The earlier using price schedules are updated on the basis
of HES-1995-96 suggested by the IMF mission (December 29, 1997January,1998).

The CPI items for the National index and its regional components have been
classified into 8 majors groups. Some new items are incorporated in the new five
price schedules in the index basket. There is no selected item for National basket
that is priced all over the country. National basket comprises of urban and rural.
Price schedules and items number:
Sl.
No
1.
2.
3.
4.
5.

Name of price schedules

Number
of items
Price schedule-1, weekly/Monthly retail (Urban)
469
Price schedule 2, Monthly retail (Rural)
341
Price schedule 3, Monthly wholesale (Urban)
112
Price schedule-4 Monthly BMP, wage & salary 213
charge and quarterly house rents
Price schedule 5
138
Monthly retail prices of Durable & Capital goods.

Remarks
CPI
CPI
WPI
BMPI,
WRI,HRI
DCI

National market consist of urban market and rural market. Urban Market is
specific for urban area and rural market is specific for rural area. A detailed list of
index basket with classification item number and weights including all specifications
such as brand names, weights are in table-A.
Number of items index basket (Base: 1995-96=100):
Sl.No.
Name of index
1.
CPI Rural
2.
CPI Urban
3.
CPI National

Number of items
215
302
-

Remarks

Selection of Base year:- Index numbers are designed to make comparison between
prices with reference to different time periods. For any index number computation
there must be a base year/reference year for comparison. The base year should be a
year of Economic stability or in other words a normal year. The base year should be a
normal year and it must be free from economic, political and Social disturbances and
as far as possible. Under the recommendation of IMF mission (December 29, 1997 January, 1998), the year 1995-96 has been selected as the base year for the
computation of consumer price index (CPI). Bangladesh Bureau of Statistics has been
regularly compiling the following consumer price index numbers on the basis of
1995-96 as the base year.

(i)
(ii)

Consumer price index, all urban areas

Consumer price index, all rural areas
3

(iii)

Consumer price index, National

Determination of weights: The commodities included in the index number are not
all of equal importance, we must consider the problem of weighting the different
commodities included in the index number according to their importance. Bangladesh
Bureau of statistics conduct Household Expenditure Survey (HES). So, the
consumption patterns were determined on the basis of the results of the 1995-96
Household Expenditure Survey (HES) based on sample of 7420 households of which
5040 in rural and 2380 in urban. Item weights were devised to reflect the significant
changes that had occurred in the consumption pattern. Almost all the item weights
have been taken from tabulation of HES data. In calculating the National CPI, all
urban and all rural indices have been combined using as weights the total country wide
urban and rural household expenditure i.e average monthly urban/rural expenditure
multiplied by the total number of urban/rural households as available from population
census data. The weights of national CPI, all urban and all rural have been derived
from the computer data sheets of 1995-96 Household Expenditure Survey. The base
year is 1995-96 and the basket and weights were determined on the basis of the 199596 Household Expenditure Survey (HES), which covered a sample of 7420
households.
Weighting patterns of CPI National, Base year: 1995-96=100
Locality

Bangladesh
Urban
Rural

Average monthly
household
Expenditure (Tk.)
7274
3473

No. of
households
(Million)
22.13
3.63
18.50

Total monthly
Expenditure
(Million Tk.)
90630.66
26383.56
64247.10

Weight
(%)
100
29.11
70.89

BBS has taken up compilation of all urban, all rural, National CPIs. The
National CPI is derived from the indices compiled separately for the urban and rural
households, based on the new weights calculated by the IMF mission using the 199596 HES. BBS revised the new weights to better reflect the consumption patterns of
household. The weights of individual items of CPI, all urban and all rural have been
derived from the computer data sheets of HES-1995-96. The weights of group and
sub-group of CPI, all urban and all rural have been derived from the computer data
sheets of 1995-96 Household Expenditure survey which is given below in table A.

Table-A, Group weights, Base year: 1995-96=100

Group
I. FOOD, BEVERAGE AND TOBACCO:

Non-food
II. CLOTHING AND FOOTWEAR:
III. GROSS RENT,FUEL & LIGHTING
IV.FURNITURE & FURNISHING
HOUSEHOLD EQUIPMENTS & OPERATIONS
V. MEDICAL CARE AND HEALTH EXPENSES
VI. TRANSPORT & COMMUNICATION
VII.RECREATION,ENTERTAINMENT
EDUCATION & CULTURAL SERVICES
VIII. MISCELLANEOUS GOODS & SERVICES

Weight
Rural (100)
62.96
37.04
6.88
14.69

Weight
Urban (100)
48.80
51.20
6.79
22.17

2.70
2.79
2.98

2.58
2.97
7.07

3.20
3.80

6.40
3.22

Formula used: In the majority of countries, the index numbers are computed using
Laspeyres formula, the weighted arithmetic mean of price relatives, the weights being
the base year values. For computation of the indices Laspeyres formula is used. The
formula is given below:Pn
i -------- Wi
Po
I = --------------- 100
W
where, 1 = Consumer price index
Pn =Price in the current year
Po= Price in the base year
Wi = Weight at the ith item
W = Weight of the group
Price consideration:
(i)
(ii)
(iii)

Special offer prices are not considered

Three price quotations are collected for each of the items in the market basket
There is a two price schedule for CPI, one for urban and one for rural areas. The
urban schedule is collected from 64 urban area containing 469 items, of them
302 are index item. Where as rural schedule is collected from 64 rural area
which contain 341 items, of them 215 are index items.

 Inflation rate: Inflation we mean a process of rising prices. Inflation is when

aggregate demand for out-put tends to be excessive in relation to the supply of out
put. Inflation is generally associated with an abnormal increase in the quantity of
money resulting in abnormal rise in prices. Bangladesh Bureau of Statistics,
calculate two types of inflation one is monthly basis and another is point to point.
Editing and Coding: Immediately after receiving the filled in price returns from
the field, the data are scrutinized and edited by the respective data compilers under
the supervision of two/three officers. Verification letters are regularly issued to
different Regional/Upa-zilla statistical offices for verification of wrong and
inconsistent price data.
Data Analysis: Collected price data are analysised and prepared by the price
section of BBS for regular publications. Analysis of some price data are regularly
published in the Monthly Advance release and Monthly Statistical Bulletin of BBS
for general use.

Recommendation/Improvement of price statistics: To improve quality

and timelines of CPI data some issues need to be resolved relating to price
collection procedures, coverage of products, treatments of seasonal products,
adjustment of quality change and the substitution of CPI products and updating the
CPI list of items and weights.
(i)

Re-basing of CPI: There are some basic reasons for re-basing of consumer
price index (CPI). Such as structural changes in production structure, structural
changes in consumption patterns, structural changes in relative prices,
appearance of new products, disappearance of old products and larger quality
changes. Goods and services are not comparable between periods that are to far
apart. So, the present base year may be changed on the basis of latest HES,
which is conducted by Bangladesh Bureau of statistics.

(ii)

Updating of price schedules: The re-basing also offers an opportunity to up

date the list of items and outlets. Quality adjustment and item substitution are
big problems in CPI compilation. Item substitution may occur due to changes in
fashion, tastes, income and technology.
There can also be substitution of outlets where consumers purchase products.
Quality adjustment is difficult for statistical agencies to carryout, because it can
not be done mechanically in a routine way; each quality change requires
individual attention. CPI staff are often put in a situation where they have to
make subjective judgement about the extent of quality change and statistical
agencies are uncomfortable making such judgements. So the price schedules
may be updated on the basis of latest Household Income Expenditure survey
(HIES-2010).
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(iii)

Computerization: The standard Laspeyres formula used in the data processing

and compilation of the current CPI remain essentially manual. This makes it
difficult, for instance, to check inconsistencies in the relatively large amount of
basic data and delays publication of the index. So, the process of
computerization of consumer price index (CPI) activities may be expanded upto District/Upazilla level offices.

(iv)

Training: Computer and statistical training is essential for price collectors,

compilers and supervisors to produce quality statistics. To arrange adequate
training facilities for the price collectors, compilers and supervising officers on
regular basis.

(v)

Supervision: Price collectors, compilers and supervisors of the price index

should meet regularly for seminars at which the supervisors would give
instructions on how to deal with the practical problems encountered in the data
collection process. Supervisors should verify the work of the price collectors on
a regular basis.