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FAQ - Domande frequenti sui prezzi al consumo

FAQ - Frequently asked questions on consumer prices

1. What does the term "inflation" mean?
2. What does a loss of purchasing power mean?
3. How is inflation measured?
4. Where can I find the figures on consumer price indices?
5. Which prices are recorded to calculate the consumer price index?
6. How are the goods and services in the basket selected?
7. Is the basket always the same?
8. Where are prices collected?
9. How are the figures collected?
10. When and how often the prices are monitored?
11. Are discounts monitored, too?
12. Are consumer price figures checked?
13. What happens once each price has been recorded?
14. How are seasonal products indices calculated when seasonal products are out-of-season?
15. Why do consumers sometimes have the impression that the rise in prices is higher than that recorded by Istat?
16. Why do some items, such as housing rentals or car insurance, seem to weigh much more on household budgets than the weight attributed to them in the basket?
17. Why is the expense of dwelling purchase not considered when calculating inflation?
18. Is there a way to calculate how price variations affect the purchasing power of households, depending on their spending habits?
19. How are consumer price indices published?
20. Are Eurostat, the European Union Statistics Bureau, indices different from those published by ISTAT?
21. Which consumer price index is used to update rentals, maintenance payments and TFR employee leaving indemnity?
22. How do I calculate the monthly rate of change?
23. How do I calculate the annual rate of change?
24. How do I calculate the annual average rate of change?

1. What does the term "inflation" mean?

The term "inflation" refers to the phenomenon of a continuous and generalised rise in prices. Inflation occurs when price rises are spread over the economic system and tend to be repeated over time (on the contrary, "deflation" occurs when prices show a persistent and widespread tendency to fall). From this point of view, a rise in inflation corresponds to a situation in which prices are rising at a growing rate, while a fall in inflation takes place when the prices, although rising, grow at a slower rate.

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2. What does a loss of purchasing power mean?

This is a reduction of the range of goods and services that can be bought with the same amount of money when prices rise. For a simple example: if the prices of a certain basket of products rise over time, with the same amount of money spent, you will be able to buy an ever smaller quantity of the same products.

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3. How is inflation measured?

Measuring inflation consists of monthly compilation of price change of a pre-determined group of goods and services (known as "basket"). In Italy, as in other European Countries, the index is calculated by the National Institute of Statistics. ISTAT produces three different indices: the Consumer price index for the whole nation (NIC); the Harmonized consumer price index (HICP) and the Consumer price index for blue- and white-collar worker households (FOI).
NIC is used to measure national inflation.
HICP is used for the comparison of inflation among EU Member States; FOI is generally used for monetary revaluations. For the national indices NIC and FOI, in 2014, the calculation of price change concerns a basket of 1,447 items (from pasta to passenger air transport, from bread to personal computers, or from petrol to a coffee at a bar, etc.) representing the universe of products purchased by households. For the Italian HICP, the basket is made up of 1,463 items.
Since March 2012, Istat also releases HICP at constant tax rates (HICP-CT) which follows the same computation principles as the HICP but it is based on prices 'at constant tax rates', estimated cancelling out the effects due to changes in indirect taxes (VAT, excise duties and other taxes on some specific items).

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4. Where can I find the figures on consumer price indices?

The latest figures can be found in the Inflation section of this site, in the I.Stat data warehouse and at Statistical information centres. As regards I.Stat, data are reported inside theme Prices, sub-theme Consumer Prices and are released at national and sub-national level for NIC and FOI indices (both from January 1996 onwards) and at national level and HICP-CT (from January 2002 onwards). In I.Stat, together with monthly and annual average indices, percentage rate of changes (on monthly, annual and annual average bases) and weights are available.

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5. Which prices are recorded to calculate the consumer price index?

In 2014 the prices of 1,447 goods and services are collected, representing household consumption. These go to make up the so-called basket, which is divided into 12 expenditure divisions, each with its own weight: Food and non-alcoholic beverages; Alcoholic beverages, tobacco; Clothing and footwear; Housing, water, electricity, gas and other fuels; Furnishings, household equipment and routine household maintenance; Health; Transport; Communication; Recreation and culture; Education; Restaurants and hotels; Miscellaneous goods and services. Within each division, each type of goods or services contributes to the compilation of the index with a weight equal to its importance on the total household consumption expenditure. For example, bread weighs 1.1% in the basket while pasta weighs only 0.6%, hotel room weighs 2.4% and campsites only 0.1%.

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6. How are the goods and services in the basket selected?

The products in the basket and the weight attributed to them are defined according to household consumption expenditure, in order to represent the structure of population's consumption. Each year a sample is specified, made up of the products whose price dynamic is representative of that of a wider range: for example, to calculate the variation in prices of the "Small electrical appliances" consumption segment, we follow the prices of plugs, electric batteries, energy saving light bulbs and adapter plugs. The identification of major household expenditure aggregates and the estimation of their weights are carried out using as main source National Accounts data on household final consumptions. These major expenditure aggregates, up to the selection of single products and the estimation of their weights, are detailed using several sources available both inside (Household Budget Survey which involves approximately 28,000 Italian households every year; Foreign Trade, Industrial Production and Tourism Flow Surveys) and outside ISTAT (figures from ACNielsen, SIAE, etc.) in order to ensure an accurate coverage.

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7. Is the basket always the same?

No, the basket is updated each year to represent the actual household purchasing behaviour and to take into account any changes in this behaviour and in the range of products offered on the market. Each year either the goods and services in the basket or their weights are updated. For example, some new items in the 2014 basket reflect the change in household consumption behaviour (such as packaged grated cheese or packaged cheese spread, coffee pods or capsules and machine for coffee pods or capsules) and the changes in offer, in particular those associated with new technology (such as camera large sensor and hybrid notebook). Other updating of the basket can be done in order to improve the coverage of some household expenditure aggregates (such as the addition of three new product for garments for children and the inclusion of long-term parking - public).

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8. Where are prices collected?

In 2014 the local survey takes place in 80 municipalities (19 regional chief towns and 61 provincial chief towns), which participate in the indices calculation of all representative items included in the basket - and in other 11 municipalities participating in the survey for a subset of products which includes local tariffs and some local services. Prices are collected in more than 41,000 statistical units (outlets, including small retailers, large-scale distribution and local markets; enterprises; institutions), in addition to around 8,000 dwellings for rents. Overall 500,600 price quotations are locally collected each month. The selected statistical units are updated every year by municipalities according to changes in consumer habits, the local distribution of retail trade and the urban structure of the territory, in accordance to ISTAT recommendations. 95,000 price quotations directly collected by Istat add to locally collected prices.

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9. How are the figures collected?

Data are collected through two surveys: the first one covers more than three quarters of the product basket and is conducted by Municipal statistics offices; the second one, relating to a little less than a quarter of the product basket, is carried out directly by Istat.

With reference to the local survey, at the beginning of each year ISTAT sends to the Municipal Offices of Statistics a list of the products to be collected, in which each good or service is accompanied by a series of specific information (e.g. packaging type for food and household goods or model and fabric for clothing, allowing for the same product to be collected all over Italy. For each product, the data collector is responsible for identifying, within the selected outlet the most elementary item ("product offer") within those ones that have the characteristics set out by ISTAT. The price of the same product will be monitored every month for a whole year.

Istat then directly collects prices of those products that have the same price in the entire national territory (such as tobacco, periodicals, medicine of class A, telephone services and some transport services, national and international package holidays), for those subject to constant technology change (computers, mobile phones, etc.) and for services not only used by the population in the single municipality (campsites, bathing establishment, farm holidays, etc.). Central survey is mainly carried out via Internet also by new data collection techniques which use web scraping automatic procedures. In 2014, for the NIC index, the weight of products which prices are locally collected is equal to 77.4%, the weight of products which prices are collected directly by ISTAT is equal to 22.6%.

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10. When and how often the prices are monitored?
With regard to the territorial data collection, the price survey is carried out in the first fifteen working days, twice a month for those products which show sharp and irregular price changes within the month (fresh fruit, vegetables and fish; fuels for personal transport and heating oil) and once a month for the other products.
Concerning the centralized data collection, prices are collected in the period from the 1st to the 21st of the month with some exceptions (transport, newspapers and periodicals, touristic, recreational and cultural services).

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11. Are discounts monitored, too?
Yes, they are. For the HICP calculation, discounts are collected if discounts are temporary, or rather they are applied in the occasion of extraordinary sales (selling-off, end-season sale or sales promotion, provided supplied product has an adequate range of models).
Starting from 2014, the discount survey has been extended to cases of "take 2 pay 1″ and to reduction prices related to the possession of "loyalty cards" which can be acquired for free.
For NIC and FOI indices calculation, discounts are taken into account only when applied without interruption for a period longer than three months.

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12. Are consumer price figures checked?
Checks take place both on a local and a central level. The Offices of Statistics in the municipalities involved in surveys must provide ISTAT with a list of the single outlets visited and the products recorded in each. Furthermore, by Law, each municipality must establish a Municipal Control Commission, chaired by the mayor or his delegate, with the task of verifying the prices collected, the methods by which the figures are processed according to Istat recommendations and the correspondence between the number of data collectors employed and the real needs of the survey. Istat, in its turn, performs checks and coherence controls on the information received from both the 80 municipalities which participate in the indices calculation of all representative items included in the basket and the 11 municipalities participating in the survey for the subset of products which include local tariffs.

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13. What happens once each price has been recorded?

Using the price quotations recorded in the municipalities involved and those recorded on a central level, ISTAT draws up an elementary index for each single product. The general index is formed of subsequent aggregations, using weighted averages, regarding both the products and the territory. The weight of each municipality in the calculation of the index depends on its demographic size.

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14. How are seasonal products indices calculated when seasonal products are out-of-season?

Seasonal products are mainly fresh fruit, fresh vegetables and clothing and footwear products. For those goods, in accordance with the European Regulation on treatment of seasonal products in the HICP, Istat has defined a monthly calendar which establishes the months when a product has to be collected and the months when it has not. When a product is not collected because out-of-season, in that month, its price is estimated. The estimate is carried out applying to the last price available the change in observed prices on average over all seasonal products which, in that month, are in-season in the same group. For instance, concerning the men's suit, the basket includes both the winter and the summer one. As from March, the winter suit is no more surveyed and from then on its price is estimated applying to the last price available the change in observed prices of summer suit.

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15. Why do consumers sometimes have the impression that the rise in prices is higher than that recorded by Istat?
First of all, we should remember that the consumer price index measures price variations in the whole range of goods and services available to purchase in the Country. It is difficult for individual consumers to recognise variations in their own personal expenditure in the overall price variations of the entire present population's expenditure. Moreover some products, although undergoing significant price rises, have a limited impact on the calculation of the all-items index due to their small weight on overall household expenditure. For example, despite price rises of 9.8% for daily newspaper, as occurred between December 2012 and December 2013, the impact on inflation was limited, as the product weight within the basket was less than 0.4%.

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16. Why do some items, such as housing rentals or car insurance, seem to weigh much more on household budgets than the weight attributed to them in the basket?

Housing rentals weigh 2.5% in the basket because only 16.5% (Census 2011 data) of Italian households live in rented accommodation. The all-items index is of course affected by this phenomenon: in practice, an expense sustained by 16.5% of the Italian households is spread over the entire population. The weight of vehicle insurance, which has an impact of 1.1% in the basket, is considered by evaluating the premiums paid by households during the year net of compensation (i.e. it takes account of the compensation paid to households in the case of a claim). It is clear that its weight in the basket reflects this calculation method which, at first glance, penalises households that did not present any claims, since they pay the premium but do not receive compensation. Once again, households in Italy are considered as a single family that sustains a single expense (the insurance premium) and receives a single compensation. This evaluation method is also used in most European Countries, in compliance with an EU regulation.

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17. Why is the expense of dwelling purchase not considered when calculating inflation?

According to the European System of Accounts (ESA 95), dwelling purchase represents an expense for investment and not consumption. Nonetheless, the calculation of consumer price indices does consider the expenses associated with housing: water supply, electricity, fuel (gas or heating oil), expenses for minor housing repair and maintenance (electrician, plumber, construction workers, tiles, bathroom taps, etc.) and housing association costs.
With regard to house prices, in accordance to an European Regulation, as from October 2012 Istat publishes quarterly the House Price Index (HPI, see Italian IPAB) which refers to all residential properties purchased by households for own-occupancy or as an investment. Meanwhile, Istat is working on the calculation of a price index which covers residential properties purchased by household only for their own use; and there is currently a debate at EU level on the opportunity, in the coming years, to incorporate the evolution of the this index in the measure of inflation.

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18. Is there a way to calculate how price variations affect the purchasing power of households, depending on their spending habits?

Yes, there is; but it must be emphasized that the inflationary impact on household expense budgets depends on spending habits of the single household. In facts, each household has different behaviours and purchases goods and services, different in terms of quantity and characteristics, in different types of outlet (traditional store, supermarket, hard discount etc.), taken into account its available income, the age and the professional condition of its members and so on.
Given the difficulty in identifying the structure of consumption by income classes, it was decided to estimate the impact of inflation on households, distinguished according to their levels of consumption, considering these levels representative of a higher or a lower spending power. From 2013, Istat calculates and releases every six months HICP indices referred to different groups of households, which are defined according to their consumption expenditure level. For each group, different weighting systems are estimated in order to take into account the relative different relevance of the expenditure items in the household budget.

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19. How are consumer price indices published?

Concerning NIC and HICP indices, dissemination takes place monthly with two press releases: with the first one (generally published at the end of the reference month), a rapid estimate of inflation, based on data of a part of municipalities participating in the survey, is released; with the second one, final data on inflation, which take into account all data and the ending of editing operations, are released. For FOI and HICP-CT indices, dissemination takes place only when final data are released. At the same time of Istat rapid estimate release, also 36 municipalities disseminate directly, by press release, the rapid estimate of inflation (measured by NIC) referred to their territory.

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20. Are Eurostat, the European Union Statistics Bureau, indices different from those published by Istat?

They are the same figures. In fact, the HIPC index is calculated, released and sent to Eurostat by Istat on a monthly basis, according to a pre-established calendar. Eurostat, in its turn, publishes the harmonised indices for the single EU Countries, and uses them to calculate and release the synthetic European index.

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21. Which consumer price index is used to update rentals, maintenance payments and TFR employee leaving indemnity?

Monetary values, such as rentals, maintenance payments for separated partners and TFR indemnity, are periodically updated using the Consumer price index for blue- and white-collar worker households (FOI) net of tobacco. The figures can be found in the Price index for monetary revaluations section. Furthermore, starting from December 2011, on the ISTAT web site the system Rivaluta is available which permits to carry out updating of monetary values by the calculating instrument. Finally an automatic response system is also active at the following number: +39 06 4673.3105.

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22. How do I calculate the monthly rate of change?

The percentage rate of change between the index of one month m and that of the previous month, m-1, is equal to their ratio, multiplied by 100, less 100; the final result is rounded to 1 decimal place.

For example, the percentage rate of change between the index of February 2011 and the index of January 2011 is

the final result is rounded to 1 decimal place.

If the reference base for the indices compared is different, the splicing coefficient is used. For example, with the updating of the reference base year to 2010 for NIC and FOI indices (the previous base was 1995=100) starting from data of January 2011, the percentage rate of change between the January 2011 and December 2010 indices is

the final result is rounded to 1 decimal place.

is the splicing coefficient from the reference base year 1995 to the reference base year 2010 and is equal to the average index of 2010 expressed in the base year 1995, divided by 100.

For the use of splicing coefficients in calculating the rate of change between indices in different bases, please refer to the Methodology notes attached to the Press release - Consumer prices.

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23. How do I calculate the annual rate of change?

The percentage rate of change between the index of month m in year t and the index of the corresponding month of the previous year t-1 is equal to their ratio multiplied by 100, less 100; the final result is rounded to 1 decimal place. For example, the percentage rate of change between the index of February 2010 and that of February 2009 is

the final result is rounded to 1 decimal place.

If the reference base for the indices compared is different, the calculation uses the splicing coefficient. For example, with the updating of the reference base year to 2010 for the NIC and FOI indices (the previous base was 1995=100) starting from data for January 2011, the percentage rate of change between the February 2011 index and the February 2010 index is

the final result is rounded to 1 decimal place.

is the splicing coefficient from the reference base year 1995 to the reference base year 2010 and is equal to the average index of 2010 expressed in the base year 1995, divided by 100.

For the use of coefficients in calculating the percentage rate of change between indices in different bases, please refer to the Methodology notes attached to the Press release - Consumer prices.

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24. How do I calculate the annual average rate of change?

For the NIC and FOI indices, the percentage rate of change between the average index of year t and the average index of year t-1 is equal to their ratio multiplied by 100, less 100; the final result is rounded to 1 decimal place.

For example, the percentage rate of change between the average index of 2010 and that of 2009 is

the final result is rounded to 1 decimal place.

If the reference base for the indices compared is different, the calculation uses the splicing coefficient. For the use of coefficients in calculating the percentage rate of change between indices in different bases, please refer to the Methodology notes attached to the Press release - Consumer prices.

Otherwise, in line with Eurostat recommendations, for the HIPC index the annual average rate of change is obtained directly from the monthly indices; therefore, for example, the percentage rate of change between the average index of 2010 and that of 2009 is

the final result is rounded to 1 decimal place.

tags:
basket, HICP, inflation, price
theme:
Prices
Date of publication
Friday, 9 May 2014
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