CPI designed to reflect collective inflation experience of all households

We refer to Mr Narayana Narayana’s letter “Make CPI more meaningful to the average Singaporean” (Sept 7).

The Consumer Price Index (CPI) measures the average price changes of a fixed basket of consumer goods and services commonly purchased by households.

As an indicator that summarises consumer price changes in the economy, the CPI is designed to reflect the collective inflation experience of all households.

It may not correspond exactly to the experience of any particular household since every household’s expenditure pattern is unique.

Mr Narayana suggested that inflation experiences of consumers would be better conveyed in dollar terms.

The Department of Statistics (DOS) publishes the average prices of selected consumer items every month in the Monthly Digest of Statistics, which is available online (www.singstat.gov.sg/publications/mdscontent#prices).

Based on the price data published by the DOS, the average price of 95 octane petrol has fallen by 15 per cent, from S$2.13 per litre in July 2014 to S$1.81 in July this year, as a result of lower global oil prices.

Moreover, the cost of “fuel and utilities” in the CPI basket, which includes the cost of gas and electricity paid by households, has fallen by around 17 per cent since mid-2014. These data show that consumers have benefited from the fall in oil prices.

Mr Narayana also suggested that accommodation costs should not be included in the CPI because most Singaporeans own their homes.

While the overall CPI (CPI-All Items) includes owner-occupied accommodation costs, the DOS publishes a CPI series that excludes imputed rentals on owner-occupied accommodation, given that such costs do not entail cash expenditure.

Between January and July, CPI as measured by this indicator fell by a smaller 0.2 per cent on a year-on-year basis, compared to the 0.8 per cent decline in CPI-All Items.

We thank Mr Narayana for his feedback.