CPI up 2.5 per cent last 12 months

The weights in the CPI and HICP are updated every January based on household final consumption expenditures from annual National Accounts (NA). The weights are kept constant throughout a whole year. The sample of goods and services in the CPI is also updated.

Measures taken by the Government to limit the COVID-19 outbreak has caused households to adjust their consumption habits to the constraints and disrupted household consumption patterns. Consequently, the pandemic has had a significant impact on household consumption expenditures during 2020. Changes seen in consumption behaviour are believed to be a combination of both permanent and temporary nature. Given the situation of the pandemic in the beginning of 2021, it is likely that the pandemic will affect the household consumption patterns also in 2021, however the severity is uncertain.

Annual NA is regarded as the most comprehensive data source reflecting the household consumption expenditures. The latest NA figures at the level of detail needed in the compilation of weights, are however lagged by two years. In normal years this is unproblematic as changes in consumption from one year to another are typically small, and the two year lagged data are considered representative for the year in question. However, given the sudden changes in consumption caused by the pandemic this assumption no longer holds. Following standard procedure of updating the weights, the pandemic would not have been reflected in the weights for 2021. It is recommended to deviate from the standard procedures by using more recent data, such as household consumption expenditures for at least the available first three quarters of 2020 (quarterly NA). Note however that the quarterly NA are less detailed than the annual NA.

When deriving weights for 2021 in the CPI, Statistics Norway has used an average of the household consumption expenditures in 2019 and 2020 based on annual NA 2019, as well as quarterly (Q1-Q3) and monthly NA (until November) 2020. Thus, the weights take into account both the changed consumption pattern caused by the pandemic, but also the uncertainty in the level of more long-lasting changes. For the HICP, the household consumption expenditures up until November 2020 are used. This is in line with the guidelines from Eurostat, as well as the regulation of the HICP, and ensures comparability of the HICP across countries.

The impact of these procedures will be an HICP reflecting the entire changed household consumption patterns in 2020, while the CPI weights will be less influenced by the consumption pattern caused by the pandemic.

Statistics Norway introduces a multilateral calculation method in the price index for food and non-alcoholic beverages as of January 2021 publication. The main purpose has been to implement a calculation method that works across different consumer groups in the CPI, takes into account expenditure shares at detailed level and captures new items as quickly as possible. Multilateral methods are internationally considered as the best approach for optimal utilization of scanner data in price indices. Multilateral method deviates from traditional price statistics methodology in that more than two periods are used in the calculations.

Multilateral methods originate from comparisons of price levels across countries, which are then adapted to comparisons over time. A multilateral calculation method can be seen as a framework that affects the choice of index formula, product definition, length and splicing of time windows and aggregation structure. Statistics Norway has chosen to introduce a GEKS framework based on bilateral Törnqvist price indices, which utilize rolling 25-month time windows which are linked together in the middle of the time window.

At the same time changes are done to the aggregation structure at detailed level in the price index for food and non-alcoholic beverages. Until now, the price for a given item in a given store has been compared with the same item in the same store over time. From now on, the price for a given item will be aggregated over individual stores within the same retail chain and at the same time fixed annual weights are introduced between the chains. Higher aggregation to consumer groups follows same procedure as earlier.

Analyzes carried out for the period 2017-2020 show that the multilateral calculation method contributes to pull the price growth for food and non-alcoholic beverages slightly up throughout the period as a whole. For sub-groups at detailed level, there may be greater differences between the old and the new method.

It was announced at the publication in January that a new data source and calculation method will be implemented for airfares as of the January index published 10th of February. Due to very low travel figures, prices of both domestic and international flights will be estimated in the January index. New method will be implemented as soon as the air traffic is more normalized.

Measures taken by the Government to limit the corona outbreak have implications for the CPI also for January. Services that were still closed or had a consumption close to zero, such as sports events and domestic flights were estimated with the change in the all-item CPI from December to January. Services with clear seasonal variation in prices such as international flights and package holidays had their price development estimated based on seasonal factors. For more information, see Corona consequences for CPI.

As one of the measures related to the corona situation, the reduced value added tax (VAT) rate was decreased from 12 per cent to 6 per cent from April 1, 2020. Reduced VAT rates apply to personal transports, hotel accommodations as well as access to cinema, sporting events and amusement parks. In addition, air passenger tax is temporarily exempt. In CPI-AT and CPI-ATE, this is treated so that the services related to non-availability due to the corona situation are not affected by the changed VAT rate nor flight passenger tax, while for the services that consumption has been taken place a reduced VAT and air passenger tax has been measured.

Statistics Norway publishes each month a seasonally adjusted all-item CPI and all-item CPI-ATE. The seasonal adjustment during the corona crisis is made in a way that the figures from the period which is affected by the crisis are not included in the data for calculating the seasonal pattern. Technically, in the seasonal adjustment routine, this is done by specifying the period as the extreme value. Statistics Norway's seasonal adjustment of all-item CPI and all-item CPI-ATE is in line with recommendations from Eurostat.