CPI-ICP Synergies and Sub-National PPPs
The need for a closer integration of CPI and ICP activities has long been recognized and discussed at various ICP meetings and conferences on international comparisons. However, little progress has been achieved in this direction. A major factor limiting progress in this direction is the lack of a clear notion of what CPI-ICP integration of activities actually means. Initially such integration was taken to imply a closer alignment of product lists used in the ICP and the products priced for CPI price surveys. Needless to say, such a suggestion was met with stiff resistance from participating countries as the national CPIs have a specific purpose and are central to policy making within the countries.
Over the last decade, a better understanding of benefits from CPI-ICP synergies has emerged. The following statement from the FOC report explains this point clearly.
“A rolling benchmark concept for ICP implies that national statistical institutions collect the necessary information on a more regular basis than every five years. Such frequency calls for the integration of ICP into the work programs of national statistical institutions. While the production of price indices (especially CPI) and the compilation of expenditure-based GDPs is a permanent process and normally part of each national statistical institution’s work program, the production of, for example, nationwide average prices very often falls outside of the official price statistics. In the case of price surveys, use of ICP-relevant surveys at regular intervals can also coincide with the need for price-level comparisons across regions (mainly for large countries) and can overlap with CPI surveys. Synergies with related statistics are certainly higher in the case of more frequent surveys, which positively affect cost-effectiveness. Similarly, to make ICP more regular and sustainable, it is essential that it become institutionalized at the global, regional and national levels. It is important that global and regional coordinating agencies incorporate ICP work into their work programs as an established business line.” Paragraph 60, E/CN.3/2016/9, UN, 2016)
As ICP moves towards annual compilation of PPPs, it is important to limit the burden on the participating countries. Achieving potential synergies by integrating ICP and CPI survey activities is likely to reduce the burden on the national statistical agencies involved in the ICP. Recognizing these synergies, the FOC urged that participating countries to integrate and harmonize ICP activities with their regular price statistics and national accounts work to ensure that the ICP becomes a sustainable and truly permanent program.
The CPI-ICP integration process received impetus from the recent surge in interest in the compilation of PPPs at the sub-national level. A number of countries, including China, India, Indonesia, Italy, the Philippines, South Africa and Vietnam have expressed interest in compiling PPPs for comparisons of prices and real incomes across regions within these countries. Through this process, the countries gain an increasing appreciation of the ICP methods and survey instruments for making spatial price comparisons.
Harmonizing CPI and ICP activities will reduce the data collection burden resulting from the implementation of the rolling survey method, while making the CPI and ICP prices more consistent and comparable, which would help improve extrapolations. The integration of the CPI and ICP activities will enhance their application for additional uses at the national and sub-national levels. The following topics are identified for research under this agenda item:
- Assess areas where harmonizing CPI and ICP processes will create synergies;
- Prepare a set of guidelines for countries to facilitate the process of harmonizing CPI and ICP activities;
- Conduct a case study of selected countries to evaluate the use of SPDs to better define their national CPI product specifications;
- Examine the Asian and African experience with sub-national PPPs and formulate guidelines on the use of the CPI product lists and prices to compute sub-national PPPs;
- Analyze temporal consistency of CPI and sub-national PPPs; and
- Expand work on sub-national PPPs to more countries.