Chapter 4 Household Consumption: Approach and Data Requirements This chapter describes the price survey of the ICP regions as well as Eurostat, the statistical International Comparison Program (ICP) for arm of the European Commission, and the household consumption products (the survey Organisation for Economic Co-operation and forms appear in annex A). It was designed to Development (OECD). serve as a practical guideline for economies The ICP 2011 global core list grew out of carrying out the main price survey in accor- the ICP 2005 Ring list that was used to link the dance with the established methods and proce- regions and the Eurostat-OECD purchasing dures for the 2011 round of the ICP. This power parities (PPPs) to the global results. In chapter covers the development and use of the the interim period prior to ICP 2011, the ICP ICP's global core list, the suggested process for Global Office prepared a subset that approxi- developing the ICP 2011 regional lists, the mately reproduced the 2005 results using a overall survey framework, the outlet defini- reduced list of 350 items distributed across all tions and price types, the definitions of avail- household consumption basic headings. ability and importance, and the distinction Matrixes of products and economies such as the between homogeneous and heterogeneous average prices of products, quotes to be col- basic headings (BHs). lected, and diagnostics of the country product dummy (CPD) residuals fed into the decision of which products to include in the global core 1 DEVELOPMENT OF THE ICP 2011 GLOBAL list. Tables also included coefficients of varia- CORE LIST tion of CPD residuals by economy and by prod- uct, indicating the coherency of prices across A significant improvement over ICP 2005 was economies and products. A combinatorial the development of a set of global core products approach was then used to single out products. that became embedded in the list of products A very important consideration in the selection specific to each region. During the 2011 round process was providing sufficient overlap for of the ICP, a global core list of 618 products computing CPD-based PPPs. This model-based was priced for the household consumption list was amended by a review group that added survey. It was developed through a participa- 30 essential items automatically discarded in the tory and iterative process, which makes it a reduction process. The amended list was dis- truly global list in the sense that it reflects com- cussed with the regional coordinating agencies ments and proposals provided by the regional in three workshops, ending with 601 items in and national coordinating agencies from all October 2010. In the summer of 2011, 17 items 149 related to fast-evolving technology and passen- PROCESS FOR DEVELOPING THE ICP 2011 ger transport by air were added to complete the REGIONAL LISTS process, bringing the total to 618 products. The preparation of the structured product The process for developing the ICP 2011 regional descriptions (SPDs) of the 2011 global core list lists consisted of a number of steps, including of items (see next section) was completed about revising the ICP 2005 regional list and making three months before household consumption amendments and revisions to products or surveys were begun in the ICP regions in removing obsolete products entirely and adding January 2011. The main list of items was newly relevant ones. To improve the process for designed to cover prices for representative selecting comparable products across econo- goods and services purchased by households in mies for ICP 2005, the Global Office designed a the ICP regions for their personal consumption system—structured product descriptions—for during the year of the survey operation, which specifying the goods and services to be priced. was 2011 for most regions and 2012 for the The detailed process for developing the ICP Caribbean and Pacific Islands. 2011 regional lists appears in box 4.1. BOX 4.1 Process for Developing the ICP 2011 Regional Lists Step 1. Start with the ICP 2005 regional list and the global core list. Supplement them the ICP 2011 global core list. with regional specificities. It was recommended that regions refer to • Identify exclusive products in the their ICP 2005 regional list and the ICP 2011 amended regional list. global core list when developing their ICP • Identify exclusive products in the global 2011 regional list. To complete the first step, core list. both lists had to be available in a structured Step 4. Consolidate the ICP 2011 regional list. product description format. • Combine products under step 3 without Step 2. Create a first draft of the 2011 regional repetition. list: • For each basic heading, align characteris- • Identify the 2005 products to be deleted. tics of all products to the global core list Such products may be described as obso- SPDs. Regions may add characteristics to lete, problematic, or imprecisely specified. the basic heading SPDs. • Identify the 2005 products to be updated Step 5. Prepare the matrix of availability and impor- or amended. The relevant product specifi- tance (more information on the concept of availabil- cations must be added. ity and importance appears later in this chapter): • Include any new products needed as well as the products' full specifications. • Ensure that all economies indicate each product's availability. Step 3. Compare the first draft of the regional list • Consolidate all economy input into a with the ICP 2011 global core list: single matrix. • Identify perfect matches (in terms of Step 6. Flag the global core list products, the characteristics) of products found in both regional core products, as well as the subregional lists. These products are added to the draft specific products in the 2011 regional list. regional list without repetition. • Identify comparable products and retain Step 7. Submit the final matrix of availability and their relevant product characteristics from importance to the Global Office. 150 Operational Guidelines and Procedures for Measuring the Real Size of the World Economy Successful implementation of the process Table 4.1 Stratification of an Economy, ICP 2011 described in box 4.1 may have required holding regional workshops to assist regions in conduct- Economy A ing each of the steps correctly. In addition, continual communication between the regional coordinating agencies and the Global Office was Region A Region B expected throughout the process of developing Urban Rural Urban Rural the regional product lists. City A City B Town A Village A City C Village C OVERALL SURVEY FRAMEWORK Source: ICP, http://icp.worldbank.org/. Three sampling aspects of the main price survey provinces, and states in order to obtain the require special consideration during implemen- needed price information. Table 4.1 illustrates tation of the price survey on household con- how economy A can be split into two regions sumption products.2 The first aspect incorporates (A and B), and then further divided into the spatial components of the survey design, urban and rural areas. The last row shows properly stratifying an economy to ensure that how the individual cities and towns in which all geographical locations are represented. For the data are collected are identified within the the second, economies need to select the indi- selected urban and rural areas. This process vidual outlets within those geographical loca- provides a practical method for considering all tions where data collection will occur. The third the relevant cities and towns across the vari- aspect is selection of the individual products ous economic territories of an economy and to price. therefore ensures that the collected prices are indeed the national average prices required Spatial Framework: Geographical Stratification for the ICP. The primary objective of the ICP is to measure price levels across economies. To meet this Selection of Individual Outlets objective, it is imperative that the national The second aspect of the survey framework average prices covering expenditures in all entails identifying the relevant outlet catego- economic territories of an economy are ries. Nine different types of outlets have been obtained for the calculation of purchasing identified for ICP purposes, including large power parities. Thus all economic areas of an shops (supermarkets, hypermarkets, depart- economy must be represented in the exercise ment stores) and medium-size and small shops because urban and rural territories often (mini-markets, kiosks, neighborhood shops, exhibit distinct pricing patterns, resulting in grocery stores, convenience stores), or other. price levels that diverge considerably. Even Once the categories are identified, economies though these trends may reflect similar can proceed to select the appropriate type and changes in prices over time, different price number of outlets in each of the defined catego- levels can still be observed. The spatial aspects ries (see World Bank 2013, chap. 7). of the survey framework ensure that the ICP The process of selecting outlets should take accurately captures national average prices, into account the diverse types of outlets and therefore ultimately accomplishing its primary their relative shares of overall expenditure. objective of measuring price levels. Some important considerations for the selection ICP 2011 covered nearly 200 economies of outlets include: that, across regions, exhibit very different and unique economic and pricing structures. A • Volume of