The consumer price index (CPI) is the instrument for measuring the change in overall price levels in France between two given periods.
The prices are those of goods and services available to consumers nationwide. INSEE tracks prices posted including value added tax (VAT) and all other levies. This scope includes clearance-sale discounts and promotions, but excludes private discounts (e.g., loyalty cards) and cash-register coupons.
A small proportion—less than 5%—of goods and services are not covered by the index: they mainly consist of private hospital services, life insurance, and gambling.
These products are excluded for methodological reasons: for example, life-insurance products are generally both insurance policies, which should be tracked by the CPI, and financial investments, which are excluded from the CPI scope of coverage. However, these two functions are inseparable. Hence it is impossible to determine the price of the insurance service alone.
Answers to some basic questions
Tracking all prices is impossible. INSEE therefore picks a sample of goods and services that are representative of household consumption.The sample comprises over 110,000 “elementary products.”
Several dimensions are taken into account:
We define the sample by means of a precise description of the three dimensions above and of the distribution of price quotations by possible combination of criteria (except for “service price” items, which we process at the national level). For example: a specific quotation will concern “3-star cognac” in the “Nantes” agglomeration in a given “hypermaket.”
In all, we collect about 200,000 price quotations monthly.
The set of published indices are constructed from these elementary data.
For a product type to enter our sample, it needs to be consumed in sufficient quantity.
European Union regulations require the tracking of all products that account for over 1/1,000th of total household consumption.
The product sample is set for the year. We update it annually to add new products (MP3 player, flavored water, etc.) and adjust for the changes in, or disappearance of, other products (videotapes, leaded gasoline, etc.).
INSEE operates a nationwide network of price collectors who, every month, collect almost 160,000 quotations at retail outlets.
In addition to recording these price quotations in the field, we collect nearly 40,000 “tariff” prices directly from national or regional utilities and organizations such as Électricité de France (EDF), telecommunications operators, the national railroads (SNCF), and local public services, as well as price listings in mail-order catalogues.
Constructing the overall index requires two major steps:
Within a given product type, there are differences due to brand, color, material, components, origin, etc. Ideally, a price quotation concerns the same product, at the same outlet, all year long. However, this is not always possible in reality, and a missing product may be replaced by another product of the same type. This substitution may generate a quality difference.
Measuring prices on a constant-quality basis means that the index calculation must exclude the “quality effect”—i.e., the price change due to the variation in quality between the substitute product and the substituted product. If the two products are equivalent, the quality effect is zero and the price difference between the old and new products is fully incorporated into the index calculation.
An example: in a particular store, a man's sweater has been taken off the shelves for good. To continue the price quotations, we replace it with another, very similar man's sweater, but its composition is not exactly identical or its brand is different. This generates a quality effect that we need to measure—one of the major challenges of price indices.
Around the 13th of every month for the previous month.
For example, we publish the May indices toward mid-June.
We survey nearly 27,000 outlets every month.
Quotations are collected in 106 agglomerations of more than 2,000 inhabitants, in metropolitan France and overseas départements.
We collect quotations in agglomerations of more than 2,000 inhabitants because prices are hard to observe in rural areas (given the limited number of retail outlets) and—most important—because it is hard to ensure reliability: there are many breaks in the observation of products tracked, and frequent changes in outlets.
Also, residents of municipalities with fewer than 2,000 inhabitants make a large share of their purchases in agglomerations of more than 2,000 inhabitants covered by the CPI.
Statisticians have always prevented interference in the index by preserving confidentiality in certain aspects of their work that would facilitate such interference.
The list of items contained in the index headings and the list of agglomerations and outlets where prices are collected remain secret. They are never disclosed outside INSEE or even to INSEE units other than those in charge of the price index.
In France as in many other countries, real-estate purchases are not covered by the consumer price index because they are regarded as investment. Their price is tracked by a separate quarterly index called “Index Notaires-INSEE du Prix des Logements Anciens,” an index of existing-home prices compiled by INSEE and the Chambres des Notaires (notaires being public officers in charge of authenticating deeds such as real-estate transactions). The latest publication, Informations Rapides is available in French.
It enables observers to track price movements month by month and therefore to assess inflationary pressures. It is a tool for decision-makers, economists in France and abroad, businesses, and industry organizations.
The consumer price index (CPI) plays a triple role:
The first generation of indices dates from 1914. Over time, the CPI coverage has widened not only in geographic scope but also in terms of the population represented and consumption categories.
The base-1998 CPI is the seventh-generation index. It covers France's entire population and territory (metropolitan France and overseas départements) and now comprises 305 item groupings (postes) whose indices are published annually. These groupings are divided into 161 groups (groupes) whose indices are published monthly.
The all-products index for all households is the composite index that enables us to measure inflation. It's the one generally quoted in the media.
It is broken down into 305 indices by product family (“eggs,” “children's trousers,” “women's hairdressers,” “retirement homes,” etc.).
We also compute several special indices.
|The best-known consumer price indices*||Lesser-known consumer price indices|
|*They are released in the Journal Officiel (government newspaper of record).
**Act no. 91-32 of January 10, 1991, on fighting tobacco dependence and alcoholism: “all reference to a consumer price index for determining a [...] benefit shall be understood as referring to an index that does not track the price of tobacco.”
To allow international comparisons, price indices have been harmonized by the European Union's national statistical institutes under Eurostat coordination.
The resulting harmonized indices of consumer prices (HICPs) do not replace national CPIs. As part of the European Central Bank (ECB) price-stability objective, the HICP is the key indicator for guiding monetary policy in the euro zone.
In France's case, the CPI and HICP display fairly similar movements, a reflection of their methodological closeness.
For purposes of economic analysis, INSEE publishes a seasonally-adjusted overall index and a core-inflation index. The latter measures the underlying trend in price movements. It excludes government-controlled prices and products whose prices are volatile, i.e., subjected to swings due to weather factors or global-market tensions. Consequently, the core-inflation index does not cover fresh products, energy, tobacco, and public-service tariffs. It is a seasonally-adjusted index.
Like the HICP, both of these indices are adjustable.
Several reasons can explain this impression:
Strictly speaking, when statisticians speak of “purchasing power” (or “real income”), they mean the real value of households' gross disposable income (GDI) as defined in national accounting.
GDI includes earned income, income from personal assets, transfers from other households and social benefits (including retirement pensions and unemployment benefits), minus taxes and contributions paid. GDI is therefore the share of income available to households for consumption and saving.
GDI is a macroeconomic aggregate equal to the sum of the disposable incomes of all households residing in France. It is estimated at several hundred billion euros. This value changes in step with its components. It is heavily determined by income movements. Measuring changes in purchasing power consists in comparing the changes in gross income and in the CPI. Purchasing power therefore rises if gross disposable income grows faster than prices. Conversely, purchasing power declines if the price index outpaces GDI. The price index, therefore, does not measure purchasing power directly but serves to calculate it.
No, the CPI is not a cost-of-living index, nor a spending index.
It measures the change in prices on the basis of constant product quality.
But it does not track the monthly variation of quantities purchased.
As financial transactions do not fall within the scope of consumption in the strict sense, they are excluded from the index. This applies to home-buying (regarded as investment), saving transactions, direct taxes, and social contributions.
INSEE addresses the variety of people's individual statuses by publishing “indices by household category” since 2004.
These indices enable us to see how differences in consumption structure between household categories modify the level of inflation they support.
We calculate price indices on the following criteria:
In addition, since February 27, 2007, we have introduced a personalized index simulator on the insee.fr website.
With this simulator, inspired by the models already offered by the German and British statistical institutes, each user can determine a price index that takes into account the specific characteristics of his or her budget, by altering the weights of a dozen product groups on the basis of personal consumption habits.
This instrument is essentially educational. The results are notional and can in no way substitute for the various price indices published by INSEE, or for their uses.