Nordic Food Markets - Appendix 1. International price comparisons
Face - Contents - Bottom - Previous/Next "Nordic Food Markets" Appendix 1. International price comparisonsThe Consumer Price Index (CPI) shows the price development on goods and services consumed in one country. The index shows the change in the cost of buying a fixed basket of goods, composed from household's consumption of goods and services, on a month-to-month basis. The goods included in the index are chosen against a background of detailed information on the division of household consumption of goods and services in the particular country, i.e. the goods are representative for the consumption pattern in the country in question. The Consumer Price Index is computed as an index of fixed weights of the Laspeyres type and includes 70 different consumption groups. For each group, a further division is carried out by using the detailed information on the division of household consumption, stemming from the consumer survey. The prices included in the CPI are the actual prices paid by consumers, i.e. incl. VAT and duties and excl. possible subsidies. The only exception is rent expenditures, where possible housing benefits are included. The CPI shows the purchasing power in one country and how this purchasing power is developing in time. I.e. every third or fourth year the basket of goods and the consumption weight might change in order to give a representative picture of the demand pattern in the country. This makes the index less suitable for comparisons of prices across countries for chosen points in time because the basket of goods might differ considerable. The HICP is the EU harmonized consumer price index which is used to illustrate the development of prices over time across countries, i.e. for inflation measurements. HIPC is based on CPI, but the way to estimate CPI is harmonised between the countries. However, owner-occupied dwelling is not included in the HIPC. HICP has been applied since 1995. The Eurostats price index is based on Purchasing Power Parities (PPP), and compares the price on a basket of comparable goods in one country with an EU average price. The Eurostat prices are collected from 31 countries, which have taken part in the European Comparison Programme for the last 30 years. Thus, Eurostat has a long experience in price investigations. Eurostat's price index gives a snapshot of the relative prices in one year. The basket of comparable good might change over time, which makes the index less suitable for comparisons of prices over time. The price collection is based on Eurostat “Guidelines for conducting price surveys relating to private household consumption”. According to these guidelines, the goods and services on which prices are collected must be comparable across all of the included countries and be representative of the general consumption pattern. If the same product is not available in all of the countries, it must be replaced by a good with the same technical characteristics. The products included are divided into branded goods and generically products. The generically products are identified from their technical characteristics. Thus, the countries who participate in the investigation collect prices of comparable products - not identical products. Also, the price observations should represent a random selection of different comparable shops. Promotion sales and discounts are included in the price collection only if the discount has duration of more than four weeks. Eurostat's prices are market prices, including VAT and taxes. On food products, the Eurostat's investigation includes approximately 2,000 prices on 500 different food- and beverage products. There are some problems related to Eurostat's price index which should be taken into account when evaluating the figures. For example, the way each country selects the stores from which they observe prices on the chosen basket of goods might differ between countries. The stores are chosen by national statistics agencies, and some of these have a lower propensity to choose e.g. discount stores than other, which may cause an imbalance between the countries. Also, the Eurostat figures are primarily based on price levels in the capitals. However, some countries have chosen to adjust their prices with respect to the possibility of prices being higher in the capital, while other countries have not. Another problem is that some countries report actual prices, where coupons and discounts are adjusted for, while others do not. The basket of goods represents another problem in the Eurostat data base. It is difficult to find goods which are fully comparable across all countries, and furthermore, different consumption patterns may cause an imbalance between the countries as some goods, which may have great influence in a few countries but not in others, are not included. There may also be a difference in the prevalence of national branded goods. Finally, organic products which are more expensive than ordinary food products and which have a high market share in some countries, are not included in the comparisons. However, for some food categories like milk, the demand for organic products is very high in some countries. If a country produces a large number of popular branded products, this may put pressure on the prices of other goods. Finally, differences in package sizes may influence the data. Countries with a tradition for larger package sizes may experience lower prices per kilo of the purchased goods. The DG Markts price index (with reference to the one from July 2004) compares prices on 82 different products in supermarkets in EU15. The price index is based on market prices, including taxes and VAT. For each product, the prices for up to four different brands are collected. Within these four brands, wherever possible, the data set includes information on both Pan European brands and generic brands. Pan European brands are defined as brands which can be found in at least four out of the five big counties (Germany, UK, Spain, France and Italy) plus in five other countries. Generic brands are brands which do not fulfil this criterion. DG Markts price index gives a snapshot of the situation in one year. A large share of the 82 products is heavily branded products, like beer and soft drinks. Branded products are usually more expensive and particularly when taxes are imposed, the supply of cheap non-branded (private labels) will be relatively high in these countries. Thus, the price index is influenced by the mix of all branded and non-branded goods on sale in a given country. DG Markt uses their comparison as an indicator on how the common market works, and should not be interpreted as a price level indicator. Version 1.0 December 2005 • © Danish Competition Authority. |