1. United Nations Economic Commission for Europe Statistical Division UNECE Workshop on Consumer Price Indices Istanbul, Turkey,10-13 October 2011 Session 6: Seasonal products in the CPI Presentation by Carsten Boldsen, UNECE

2. UNECE Statistical Division Slide 2 Overview 1.What are seasonal products? 2.Fixed and variable weights approach 3.Imputation and carry forward of prices of out-of-season products 4.Conclusions

3. UNECE Statistical Division Slide 3 Seasonal products Definition of seasonal products: Strong seasonality: Products that disappear for a period so that prices cannot be collected in all 12 months of the year Fresh food Clothing and footwear Weak seasonality: Products available in all months but with strong fluctuation in prices – and in consumption

4. UNECE Statistical Division Slide 4 Seasonal products What is the problem with seasonal products? The CPI aims to measure the average price change from month to month of an annual basket of products! ☞ The fixed weights approach: Maintain fixed annual weights and estimate/impute prices of out-of season products ☞ The variable weights approach: Use variable monthly weights reflecting the changing basket over the year

5. UNECE Statistical Division Slide 5 Seasonal products Does it matter?

6. UNECE Statistical Division Slide 6 Seasonal products Four solutions with the fixed weights approach: Model 1: Carry forward the last observed price until the product reappear Model 2: Bring price back to ‘normal’ and carry forward until the product reappear Model 3: Impute out-of-season price by appropriate price indices until the product reappear Model 4: Bring price back to ‘normal’ and impute the missing price until the product reappear Include all price changes in the index calculation!

7. UNECE Statistical Division Slide 7 Seasonal products Model 1: Carry forward (a)

8. UNECE Statistical Division Slide 8 Seasonal products Model 2: Carry forward (b)

9. UNECE Statistical Division Slide 9 Seasonal products Model 3: Impute price (a)

10. UNECE Statistical Division Slide 10 Seasonal products Model 4: Impute price (b)

11. UNECE Statistical Division Slide 11 Seasonal products Example how not to do: use previous periods average price

12. UNECE Statistical Division Slide 12 Seasonal products Observed and imputed prices Use imputed price: Use previous average price (33) JanFebMarAprMayJunJulAugSepOctNovDecJanFeb In-season price40393731184038 Imputed price1819201918 1715

13. UNECE Statistical Division Slide 13 Seasonal products Conclusions: While prices are carried forward, the monthly changes of the CPI will be biased towards zero Imputation avoids, or at least reduces, the bias of the monthly changes of the CPI The 12 months rate of changes will be (largely) unaffected in all the four models In the long-term, the CPI will show the correct development in all four models

14. UNECE Statistical Division Slide 14 Seasonal products The method must be ‘self-correcting’ – price changes over seasons has to be included to bring the index back on the right level! Group elementary indices so that they facilitate imputation within the same aggregate