Consumer Price Index (CPI)

The Index is generally not concerned with non-monetary expenditures because only monetary expenditures generate monetary prices that can be observed and recorded, and the measurement of inflation is concerned with changes in monetary prices. Thus, goods and services received as remuneration in kind, and gifts or other transfers are excluded from the Index. In addition gifts or other transfers to consumers incur no expenditure on the part of the consumer and therefore will be assigned a weight of zero, thereby making its inclusion in the Index unnecessary.

However, by international convention and also by recognition of the fact that one of the main uses of the Index will be to estimate a cost of living index, non-monetary expenditure on services produced and consumed by owner occupiers of dwellings are included within the scope of the Index since they have a significant impact on consumers welfare and standard of living. It is therefore necessary to impute a value for such non-monetary expenditures.

It should also be noted that, like dwellings, household or consumer durables such as refrigerators, washing machines etc., included in the Index, produce a flow of services which are inputs into other goods and services (outputs), which are then used to satisfy personal wants and needs of households. In such cases, the market value of the output should be imputed. Owing, however, to the practical and conceptual difficulties associated with such imputations, and the desire to measure actual prices, as determined by the market, the acquisition cost of these inputs are measured, that is, these durables are treated as final consumer goods.

Expenditures on items, which are not consumer goods and services (investment expenditure), are excluded from the Index. Thus, the following items are considered investment items or items of saving leading to the creation of financial assets and are excluded from the Index:

(i). Dwellings (The acquisition cost of dwellings is excluded. However, an imputed expenditure on household services derived from the use of the owner occupied dwelling is included.), land;

(ii). Mortgage payments;

(iii). Bonds, shares and other financial assets;

(iv). Health insurance premiums, pension contributions and the premiums paid for life insurance polices, most of which are savings, which in turn lead to the creation of new financial assets (investment). No estimate is made for any service charge element of premiums or contributions, which does represent consumption expenditure.

Transfers are unilateral payments, which do not result in the consumer acquiring any good, or service in return, that is, there are no counterparts. The following items incur payments, which are in the nature of transfers and are therefore excluded from the Index.

(i). Payments directly related to the ownership of assets such as income tax, and property rates and taxes. WASA rates can, however, be included since there is the provision of water in exchange for the payment.

(ii). National Insurance Contributions (NIS) and any other social security contributions.

(iii). Licenses for owning or using motor vehicles, such licenses being deemed direct taxes. However, licenses or fees for driving permits are by international convention included in the Index.

(iv). Subscriptions, donations and gifts. However, club fees or subscriptions to organizations that provide some service in return are included.

(v). Non-compulsory tips. However, compulsory service charges included in, for example, a restaurant bill for meals are included.

Owing to the exclusion of data on illegal goods and services from the Household Budget Survey, and the practical problems associated with obtaining price data for such items, illegal goods and services are excluded from the Index.