Consumer price index, 15 September 2001

Statistics Norway will from today publish two new monthly indicators: CPI adjusted for changes in real taxes (CPIAT) and CPI adjusted for changes in real taxes and energy prices (CPIATE). The consumer price index adjusted for changes in the prices of energy prices (CPIAE) will continue to be published.

CPI excluding energy products

On 10 April Statistics Norway published a consumer price index excluding energy products. Table 1 shows the energy products in the consumer price index with associated weight shares. All told, the energy products comprise 7.75 per cent of the consumer price indexs weight basis from August 2001. The CPIAE is thus calculated on the basis of 92.25 per cent of the CPI. Other calculations of the CPIAE are identical to the arrangement for calculating the consumer price index. All conventions for rounding out are also fully harmonized with the CPI.

Except for motor oil, with a weight share of 0.3 per thousand, and a specially representative product for petrol, with a weight share of 1.3 per thousand, all index series are published in the consumer price indexs ordinary table framework. The two representative products, which were not published previously, will now be made available to users.

CPI adjusted for tax changes

When publishing the CPI for July and August, estimates were made for what the consumer price growth would have been without the tax changes that occurred from 2000 to 2001. These estimates were based on the individual impact of each price change on consumer price growth. In September, Statistics Norway began publishing a new indicator for consumer price growth adjusted for real tax changes (CPIAT). This monthly indicator is published with the monthly change, the 12-month change and annual growth. Figures for this indicator are calculated back to August 1999.

The CPIAT and CPI have an identical weight basis and are calculated in the same way. The CPIAT is also based on actual, observed prices, but those are adjusted for real changes in taxes.

There are many alternatives as to how to adjust for changes in taxes, and the choices that are made will influence the indicators characteristics. A relatively simple method would have been to take out all nominal tax changes, i.e. correct for the entire kroner increase in the taxes. In periods of general price growth, this method would mean that taxes with zero growth remain as an “anchor.” An obvious alternative to this method is to adjust the taxes with the price growth. This is done on the basis of a desire to identify the impact of real tax changes, i.e. changes that deviate from the general price growth, on CPI growth. When calculating the CPIAT, a method is used whereby the taxes are adjusted so that the growth in the tax becomes equal to the annual growth in the CPI. Furthermore, the current tax level at the end of the year is what is adjusted with the price growth through the subsequent year. How this is done in practice can be illustrated with the following example:

Example :

The petrol tax in December 1999 was NOK 4.25. In the state budget the tax was adjusted for inflation (2.1 per cent) to NOK 4.34 in 2000. The actual annual growth in CPI from 1999 to 2000 was 3.1 per cent. The annual index of the CPI in 1999 was 102.3. The CPI in January 2000 was 104.1. The increase from 1999 to January 2000 was thus 1.76 per cent.

In calculating the CPIAT in January, NOK 4.34 is taken out from the observed price (excl. VAT) and NOK 4.32 is added (NOK 4.25 x 104.1 / 102.3), which is the adjusted tax. The base prices contain a tax rate of NOK 4.25 throughout 2000.

It follows from the example that tax changes are fully reflected in the retail prices and that this occurs immediately after the tax change. A possible drawback in price-adjusting the taxes this way as opposed to using a constant deflator, is that the taxes contribution to the price growth will vary in periods where no actual tax changes have occurred. The advantage is that the taxes are adjusted with the actual annual growth in the CPI at the end of the year, and that the tax rates have reflected the variations in CPI growth throughout the year. It should be emphasized that this is a matter of choice of methods, and that there are arguments favouring the use of other price indexes and other “rules” for correcting the taxes.

The CPIAT takes into account the following taxes:

1. Value added tax
2. Alcohol tax
3. Tobacco tax
4. Petrol tax
5. Diesel tax
6. Tax on boat engines
7. Consumer tax on electricity
8. Taxes on mineral products
9. Chocolate tax
10. Tax on non-alcoholic beverages
11. Sugar tax
12. Air-passenger tax
13. Tax on cassette tapes
14. Tax on radio and television equipment

In addition to these taxes, it would have been desirable to have adjusted for changes in taxes on motor vehicles, which for the CPI means automobiles and motorcycles. Taxes on automobiles and motorcycles are based on the characteristics of specific models. Statistics Norway has no information on these characteristics through its regular CPI data capture, hence it is not possible to take into account changes in those taxes in the period August 1999 to September 2001. Data capture will be changed in this regard so that in the future the CPIAT will take into account changes in taxes on motor vehicles.

CPI adjusted for tax changes and energy prices (CPIATE)

In addition to the CPIAT, Statistics Norway publishes a consumer-price-growth series for real tax changes, where the energy products are excluded. The weight basis for this series is identical to that of the CPIAE, and the taxes are treated in the same way as in the CPIAT. Because the energy products are excluded, the taxes levied on those products will of course also be excluded from the calculations. Nevertheless, changes in energy taxes will have an indirect impact on this indicator, being that the CPI is what is used as the basis for adjustment, and tax changes on energy products will affect the CPI.