Meeting of Experts on Consumer Price Indices Geneva

Meeting of Experts on Consumer Price Indices Geneva, 10 -12 May 2010 Quality adjustment Survey by purchase of products : The AFRISTAT experience in West and Central African countries ___________________ Claude Tchamda, expert in price statistics, AFRISTAT E-mail : claude. tchamda@afristat. org

Outline Ø Context Ø Structure of final consumption basket in West and Central African cities Ø Implementation of the method in AFRISTAT members countries Ø Some alternatives to the method Ø Difficulties and critics of the method Ø Perspectives, recommendations and conclusion

Context (I) v. Coexistence of conventional units of measuring (Uo. M) with traditional units such as pile, heap, pack, bundle, tin, box, cup, goblet etc. on markets. v. Purchased quantities converted into conventional Uo. M vary from one transaction to another with the same traditional unit.

Context (II) v. Limited financial resources. v. No or very few qualified human resources. v. Harmonization of methodology among members countries. v. A desire to minimize gap between the inflation rate and consumers perception.

Structure of final consumption basket in West and African cities Central The products of the consumption basket are classified into 4 groups: 1 - The heterogeneous products: this group comprises mainly manufactured product and services (HE). 2 - The homogeneous products sold in conventional Uo. M (O 1). 3 - The homogeneous products sold with non conventional units but more or less equivalent among outlets or sellers (O 2). 4 - The homogeneous products sold with non conventional units different from one outlet or seller to another (O 3).

Structure of final consumption basket in West and Central African cities: Bangui-Central African Republic

Implementation of the method (I) q Survey by purchase of product is applied for the products O 2 and O 3. q Their weight varies from a minimum of 12% in Dakar to a maximum of 42% in Brazzaville. q The difference of variation of prices can originate in difference of methods from one period to another or from one country to another.

Implementation of the method (III) (some examples from Yaoundé-Cameroon) Product name Observed unit Cornstarch Cup 0, 00 +5, 37 Common wheat flour Plate 0, 00 +4, 03 Fritters of corn cooked Piece to oil, artisanal cooking 0, 00 -14, 07 Fritters of cornstarch cooked to oil, artisanal cooking Piece 0, 00 +13, 23 Fresh plantain, green Pile 0, 00 -5, 17 Fresh potato Pile 0, 00 +12, 00 Variation of observed price from August to September 2009 (%) Variation of converted price from August to September 2009 (%)

Implementation of the method (IV) • Products O 2: ü a quantity of product is purchased and weighted once a month per seller or per outlet and the price is converted into a conventional Uo. M; ü for the rest of the month, only prices are collected normally. • Products O 3: ü a quantity of the product is purchased for all sellers or outlets concerned and weighted, ü the prices are converted into conventional Uo. M.

Implementation of the method (VI) • The minimum number of observations is 30. • The balances used to weight products are electronic with a precision of 1 g. • The computation of data is realized with a software (CHAPO) that integrates this method. • With time, some of these products are downgraded from O 3 to O 2 or from O 2 to O 1.

Some alternatives to the method (I) v Collecting prices directly from sellers : It’s is likely to maintain prices artificially fixed. v Negotiating with sellers to weight the products without paying; can it last? v Choosing a sample of households and weight their products after purchases. Problem: coverage of all observations and sampling of households that reflects the reference population of the indices? ?

Some alternatives to the method (II) v Survey of purchasers (CPI Manual, par. 6. 96) ; v Survey of trends in wholesale prices (CPI Manual, par. 6. 98) ; In the context of harmonization of practices and limited qualified human resources, these methods, are ü either source of important biases comparing to consumer perception, ü not easy to explain to users, ü or difficult to implement and to harmonize.

Difficulties and critics of the method (I) Difficulties • Managing and identifying quality adjustment in some cases of suspected price variations. • Implementing a control system to make sure that the funds to purchase products are effectively used for this purpose. • Governance of the destination of products purchased. • Convincing financial partners because of suspicions concerning the cost and governance.

Difficulties and critics of the method (II) Critics § According to some colleagues, through this method, price statisticians buy information? ? §The method increases the costs of price collection ? ? ? for the AFRISTAT members states, the cost of the implementation of the method varies from 400$ to 600$ and represents about 20% of monthly budget (equipments and managing fees excluded).

Perspectives, recommendations and conclusion (I) Perspectives üThe cost of the method decreases progressively with the modernization or the standardization of the Uo. M in the economy. üThere are possibilities to downgrading more O 3 products to O 2 and O 2 to O 1.

Perspectives, recommendations and conclusion (II) Recommendations ØNSO can initiate or help government to standardize Uo. M for these types of products in their country ØThere is necessity for NSO to ameliorate the governance concerning the budget and the final use of products purchased ØOrganizing (OIT, FMI, UNECE or OAU) special training sessions on prices statistics for francophone developing countries in Africa.

Conclusion Perspectives, recommendations and conclusion (III) ØSurvey by purchase seems less difficult to implement and harmonize between countries; ØIt is likely to minimize the gap between the inflation rate and the perception of consumers; ØThe method is easier to explain to common users of CPI. ØThe cost of the method diminishes with the modernization of the economy.

Meeting of Experts on Consumer Price Indices Geneva, 10 -12 May 2010 The end Tank you! AFRISTAT Economic and Statistical Observatory for Sub-Saharan Africa Po B E 1600 Bamako-Mali E-mail: afristat@afristat. org Web site www. afristat. org