Iceland (Reykjavik)
Official title
Cost of Living Index.
Scope
The index is compiled monthly and relates to households of all
types (including those of civil servants) in Reykjavik.
Official base
May 1988 = 100.
Source of weights
The household expenditure survey on which the present Consumer
Price Index is based was conducted from July 1985 to June 1986, covering
the whole country. A random sample of households was selected from the
National Register, regardless of size, occupation and domicile, but with
an upper age limit of 70 years for the head of the household. When the
new base was adopted, the household expenditure weights were adjusted
for the time lag between the survey period and May 1988. This
adjustment mainly concerned an increase in the ownership and use of
passenger cars and in TV licences following the establishment of a
private television channel partly financed by viewers' charges. The
weights for items not priced are reflected by their closest substitutes
among the priced items.
Weights and composition
| Major groups
| Number of items
| Weights
| Approximate number of price quotations
|
| Food
| 269 | 20.6 | 2933
|
| Beverages and tobacco
| 32 | 4.4 | 245
|
| Clothing and footwear
| 75 | 7.9 | 327
|
| Rent, electricity and hot water for heating
| 59 | 16.2 | 59
|
| Furniture and household equipment
| 99 | 7.4 | 371
|
| Medical care
| 34 | 2.3 | 60
|
| Transport and communications
| 46 | 18.9 | 158
|
| Recreation and education
| 100 | 11.0 | 179
|
| Other goods and services
| 80 | 11.3 | 358
|
| Total
| 794 | 100.0 | 4690
|
Household consumption expenditure
The household expenditure survey from which the weights are
derived was intended to cover all types of expenditure.
Income in kind was not covered in the household
accounts, but was taken into account to some
extent in the expenditure reports
for the year (1985) and is thus partially reflected in the
index. Home ownership is covered as the Icelandic owner-occupant
ratio is estimated to be over 80 per cent. Expenditure on
this category includes interest payments, depreciation,
maintenance and insurance costs, real estate taxes, etc. Durable goods
credit purchases, second-hand purchases and trade-ins were all covered
in the household expenditure survey and used to determine the original
weights. However, once adopted, the weights were all defined as
relating new purchases, and therefore no account is taken of credit
purchases or changes in consumer credit terms.
Social insurance is funded through the tax system in Iceland
and not included in the index. Pension fund contributions are
not covered; in Iceland, these are compulsory flat-rate
deductions from wages and salaries.
Licence fees are included to the extent that these were
reflected in the household expenditure survey;
insurance associated with specific consumer goods, life
insurance and remittances of various kinds are treated in the same way.
Health care expenditure is included to the extent that it is borne
directly by patients or recipients. Income taxes and other direct taxes
are not included.
Method of data collection
Outlets and other sources of price data for goods and services were
selected mainly so as to provide an even geographic distribution
throughout the capital region. Where applicable (mainly food stores),
the outlets have also been given weights based on their estimated
turnover. Prices are obtained from 322 retail outlets and service
establishments.
For the majority of categories, prices are collected
during the first week of each month. For certain seasonal
expenditure (holiday travel abroad, domestic vacation or leisure
expenditure, certain educational expenditure concentrated at the
beginning of the school-year), prices are collected and adjusted
less frequently.
Information on the prices of goods and private services is
collected directly from sellers, either through visits to outlets
by investigators or, mainly as regards certain service items,
by telephone.
Information on service charges for public utilities is obtained
either by direct communication with the utilities or from
official tariffs, regulations, etc.
Electricity and geothermal water prices (heating and hot
water) are computed as national averages. The Statistical
Bureau obtains its information from the National Energy Authority
that collects prices from all electricity and geothermal heating
utilities in the country. Information on the medical care costs borne
directly by patients or recipients is mainly based on official tariffs.
Dentistry prices are based on tariffs published by the Dentists'
Association.
Information on prices of educational items is obtained by both
investigators and direct communication with establishments.
Transport and communication prices are collected both from
official or published tariffs and by direct communication with
establishments.
Prices are collected by trained personnel. As a
rule, the same persons carry out the field work in each type of
establishment, i.e. certain people collect price data on food and drink,
others on clothing, etc.
As a rule, discounts are not included except for
discounts for cash payments. Sale prices are not observed.
Official prices are only included to the extent that it is certain
that these are the real market prices.
If a difference emerges between official or regulated prices
and market prices, the official prices are always discarded. No
attempt is made to investigate the black market; in Iceland this
would in any case almost exclusively extend to illegal goods or
services such as narcotics, etc. Hire-purchase or credit terms
are not covered. All price quotations are based on cash prices.
Second-hand purchases are not included. Prices of imported goods
are collected at the relevant outlets; consumers' own
imports of goods are not specifically observed as they account for
only a small fraction of all purchases.
Housing
Because of the high owner-occupant ratio in Iceland, rent is not treated
as an index item. Home-ownership is covered as the Icelandic
owner-occupant ratio is estimated to be over 80 per cent. Expenditure
for this category includes interest payments, depreciation, maintenance
and insurance costs, real estate taxes, etc.
Specification of varieties
Items for price collection were selected on the basis of the
household expenditure survey which itemised in great detail the
make, brand, unit and description of the merchandise, subject to
certain revisions to correct for the time lag between the survey
period and the adoption of the index. There are detailed
specifications for each item that describe the variety, make,
brand, unit, etc. selected as indicated above.
Substitution, quality change, etc.
Quality changes are not a major problem becaus of the detailed
product specifications that are applied. If such changes are thought to
be cause for concern, they are dealt with by a change in the specified
brand or type. The appearance of a new product should be reflected in
the household expenditure surveys that are carried out at least once
every five years. However, new products are incorporated as they appear
to the extent that they fully replace products that were priced in the
index. The disappearance of a product that was priced in the index is
dealt with by replacing it by its closest substitute on the market.
Seasonal items
No adjustments are made for seasonality. In a few instances, the
prices of certain seasonal services, mainly recreation
expenditures, are collected at predetermined points in time and
kept constant in the interval.
Computation
The index is computed according to the Laspeyres formula as a
weighted arithmetic average with fixed base, using weights
corresponding to the base period. Weighted arithment averages are
used to calculate price averages. In most cases, the weights
are based on estimated turnover or sales. Missing or faulty
price data are generally dealt with by applying the average change for
other products in the same group or sub-group.
The computation of the index is based on prices for
the capital region, except for fuel, heat and light, for which
prices are calculated as averages for the whole country.
Annual averages are calculated as arithmetic averages of the
monthly computations, in which the indices for the beginning of each
month from February to December have equal weights but the index
for the beginning of January and a specially estimated index for
the end of December each have half of the monthly weights.
This more or less equals a conversion of the
beginning-of-the-month indices to mid-month indices.
Organisation and publication
Statistical Bureau of Iceland: Hagtidindi
(Reykjavik).
Central Bank of Iceland: Economic Statistics
(quarterly).