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The Consumer Price Index

What does the consumer price index describe?

The consumer price index for Germany measures the average price change for all goods and services purchased by households for consumption purposes. Single-person households are covered in the same way as couples of pensioners or large families. The consumer price index provides an overall picture of price rises in Germany. The index covers all types of households, all regions in Germany and all goods and services which are in demand in those places - rents, food, clothing and also motor vehicles and services such as hairdresser, dry cleaning or repairs.

The consumer price index, which is the central indicator to judge monetary value trends in Germany, is used as a benchmark, for instance, in wage negotiations or in agreement clauses regarding the level of recurring payments (so-called stable-value clauses). It is also used for deflation purposes in national accounts, for instance, in the context of calculating real economic growth. The Harmonised Index of Consumer Prices, which is the index adjusted for international purposes, is above all used by the European Central Bank to assess inflation in Germany.

How is the consumer price index calculated?

Calculating the consumer price index is based on a basket of goods and services which includes all goods and services that are relevant components of consumption in Germany. The basket is continuously updated in order to include the goods which are frequently bought by consumers in the current price observation. Concrete products are selected for price monitoring in the context of representative sample surveys. Usually, the procedure is the following: First representative towns or cities are selected. In a second step, representative shops are selected in these towns or cities. And, finally, the products are selected which are sold most frequently by the shops selected.

To measure price trends, price collectors collect the prices of the same products in the same shops in Germany every month. In addition, prices are centrally collected for many types of products, for instance, via the internet or in mail-order catalogues. On the whole, more than 300,000 individual prices are collected every month. An item selected for price monitoring purposes is replaced by another one, if the former is only seldom or no longer sold. Quantitative changes are also considered in price comparisons. If, for instance, a seller changes the quantity of a product included in a definite package, while the price remains the same, price statistics will record such changes as price increases. In addition, qualitative changes are taken into consideration, too. This applies, for instance, to goods which are subject to technological progress. The prices taken for price observation are purchaser’s prices (including VAT and excise duties).

As a next step, the products included in the basket of goods and services are broken down by approximately 600 types of products. To calculate the overall rate of price increase, the average price trend for a type of products is weighted with the average proportion of the budget that households spend on this product type. The result is a weighted average reflecting the price trend in Germany. The weighting information is included in what is called a weighting pattern. Unlike the basket of goods and services, the weighting pattern used for the compilation of the consumer price index is updated at five-year intervals in order to reflect the genuine price development irrespective of changes in expenditure weights.

The essential basis for determining the weighting pattern is the sample survey of income and expenditure. The number of participants in this household budget survey amounts to approximately 60,000. On a voluntary basis, the participants record their income and expenditure over a period of several months, and they transmit the relevant information to the statistical offices of the Länder. The basic information obtained in this manner is refined by some additional minor surveys, which provide information on the detailed breakdown of household expenditure by individual types of products. Finally, the results of the household budget surveys are integrated at the Federal Statistical Office. Where necessary, corrections are made using additional information, for instance, from excise duty statistics.

When and where is the consumer price index released?

A preliminary estimate is issued two working days before the end of the month, which the result refers to, at the latest. Final results are issued around the middle of the following month. They include detailed data both for about 600 types of products and in different forms of aggregation.

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