Volume 1: Consumer Price Indices

Tonga

Official title

Consumer Price Index.

Scope

The index is compiled quarterly and covers all wage earners' households in Tongatapu.

Official base

1984 = 100.

Source of weights

The weights and selected items were derived from a household expenditure survey conducted in Tongatapu in 1984.

The weight of items excluded from the index are allocated to items that are included in two different ways:

if the item excluded is closely related to an item included, the weight is added directly to that of the included item, i.e. the weight of the index item represents expenditure on both items. These are referred to as kindred items. For example, the weight given to orange also represents expenditure on orange sour, citron, lemons and mandarins.
in most other cases, i.e. where an excluded item cannot reasonably be regarded as kindred to any one item included, the weight of the excluded item is distributed among a number of included items or all the items in a whole sub-group or group. For example, the weight for vacuum cleaners, excluded from the index, is distributed among the individual household appliance items.

In a few cases where it is not feasible to distribute the weight of an excluded item amongst other items, sub-groups or groups, the expenditure is excluded entirely from the weighting calculations. This is the same as if the weight had been distributed amongst all of the items in the whole CPI, i.e. it does not alter the relative weights of any of the items included.

Weights and composition

Major groups	Number of items	Weights	Approximate number of price quotations
Food	104	49.308	5
Housing	34	10.458	5
Household goods	60	13.316	5
Clothing and footwear	40	5.623	5
Transport	15	5.771	3
Tobacco, alcoholic beverages and Kava	6	6.987	5
Other goods and services	48	8.537	4
Total	307	100.000	32

Household consumption expenditure

Consumption expenditure for the purpose of the index excludes income taxes, rent, home ownership savings and business purchases.

Method of data collection

Prices are collected in Nuku'alofa and other centres on Tongatapu island as closely as possible to the middle of the mid-month of each quarter, i.e. the middle of February, May, August and November. Price collection is spread over a period because of the amount of work involved in making the personal visits. For fresh fruit and vegetables whose prices frequently vary substantially over short periods, prices are collected each fortnight during the quarter so as to provide a better representation of average prices during the quarter.

In selecting outlets for pricing, the large traders are first selected because they account for substantial proportions of sales and sell a wide range of goods. These are then supplemented by a sample of smaller outlets of various types to ensure that there is a balanced coverage for all items. For example, for an item such as tinned foods some small corner shops are selected both in and out of Nuku'alofa as well as the large supermarkets in Nuku'alofa.

Prices are not only collected from retail shops but also from a wide variety of businesses which sell consumer goods and services to the public, including fruit and vegetable markets, restaurants, hotels, motor vehicle dealers and service stations, electricity authority, taxi and bus operators, building contractors and various kinds of tradesmen, postal and telephone authority etc. Almost all of the information on retail prices is collected by means of personal visits by staff of the Statistics Department to the shops or other businesses concerned.

The CPI measures changes in actual transaction prices, i.e. the prices that consumers actually pay when they purchase goods or services. It takes into account all kinds of discounts, special offers, etc. as long as they relate to the goods and services specified and are available to all purchasers. It does not take account of discounted prices for damaged or shop-spoiled goods or special prices relating only to a sell-out of the last few items in stock.

The prices used in the CPI include retail sales tax, since this is part of the prices that consumers actually pay. Thus, any change in the rate of sales tax affects the movement in the CPI.

Housing

Rent is not included as an index item.

Specification of varieties

After determining the list of items to be included in the index, it is necessary to specify precisely which goods and services are to be priced regularly for the purpose of compiling the index numbers. Items described as tea, man's shirt, bicycle or taxi fare are defined sufficiently for the purpose of calculating weights but are not described in enough detail to permit consistent pricing. For tea the specification must state whether tea-bags or packet tea are to be priced, the size of package, etc. For a man's shirt, the specification must state whether it should have long sleeves or short sleeves, the type of material and so on. For a bicycle, the specification must indicate the type and size of bike, the accessories included, etc. For taxi fares, the length of journey to be priced is specified.

Consequently, for every item in the index, detailed item specifications are written down to guide the price collectors in obtaining prices for comparable goods and services in each successive quarter. For some indix items, only one specification is priced but for others two or more specifications are priced.

Substitution, quality change, etc.

If a selected item is found to be temporarily out of stock, the usual practice is to continue using the last recorded price for the item until it becomes available again. If the item continues to be out of stock for several successive quarters (but is still expected to be restocked in the near future) a price may be imputed on the basis of changes in prices of other closely related items whose prices might be expected to change in a similar manner to that of the item not available. If an item becomes unavailable permanently the usual procedure is to replace it with a similar item. If a new model replaces the discontinued one this is substituted in the index. If nothing directly replaces the discontinued item another similar item is chosen as a substitute. In either case, the new item has to be introduced in the index in such a way that any difference in prices of the two items does not affect the level of the index. This is done by linking the two prices together. If the old and new items happen to be available at the same time splicing is a straightforward process.

However, if the old item simply disappeared without warning and a new item has then to be chosen, the process is not as simple. In that event, it is desirable in principle to obtain additional information before attempting to splice the two price series; ideally one should have a price for the new item for the last period in which the old item was available. In practice, this is often not possible and splicing has to be done on the assumption that the last price for the old item and the first price of the new item represent an appropriate price relationship between the two items.

Seasonal items

If a seasonal item, e.g. some kind of fruit or vegetable, is not available in a particular quarter, its weight is redistributed amongst other similar items until it becomes available again. This procedure has the same effect as imputing missing prices.

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. For those items for which prices are collected from more than one outlet, and for items such as fresh fruit and vegetables which are priced more than once in each quarter, an average price for the item for the quarter is first calculated. Then the current quarter's price for each item is compared with the base year price for the same item in order to calculate a price-relative.

Organisation and publication

Statistics Department: The Annual Statistical Abstract (Nuku'alofa).

Idem: Consumer Price Index.