FOOD PRICE INDEX

Food price index

“The FAO food price index is the measure of monthly change in the international prices of basket of food commodities

It consists of average of five commodity group price indices, weighted with the average export share of each of the groups for 2002-2004” -FAO

The food price index averaged averaged 196.6 points in August 2014, its lowest level since September 2010. In August, the index registered its fifth consecutive monthly decline, down 7.3 points (3.6 percent) from July and 7.9 points (3.9 percent) from August 2013.

The five commodity group indices are :The FAO cereal price index averaged 182.5

points in August, down 2.8 points (1.5 percent) from July and 24.2 points (11.7 percent) from August 2013.

The FAO Vegetable Oil Price Index averaged 166.6 points in August,  14.5 points (8 percent) less than the previous month and the lowest level since November 2009.

The FAO Dairy Price Index averaged 200.8 points in August, down 25.3 points (11.2 percent) over July and 46.8 points (18.9 percent) less year-on-year. 

The FAO Meat Price Index averaged 207.3 points in August, 2.5 points (1.2 percent) more than its revised value for July and 25 points (14 percent) above last year.

The FAO Sugar Price Index averaged 244.3 points in August, down by 14.8 points (5.7 percent) from July, but still 2.2 points (1 percent) higher than in August 2013. 

CONSUMER PRICE INDEX

WHAT IS A PRICE INDEX?

P rice Index is a normalized average of prices for a given class of goods or services in a given region, during a given interval of time

Consumer Price Index

Definition: The consumer price index (CPI) is a measure of the changes in the average price of goods and services that consumers normally purchase such as food, clothing, medicals and others. CPI is also a measure that indicates changes in the general price level from the base year to the current year.

There is an inverse relationship between the general price level and the value of money. The value of money is the purchasing power of the consumer, or the ability to buy goods and Services. When the general price level is higher, the value of money will be lower and vice versa.

Generally accepted as a measure of inflation in the country

• It measures Price changes of fixed market basket of goods and services of constant quality and quantity.

• It tells how much cost of living has risen or fallen due to price changes irrespective of changes in consumer behavior or quality of goods.

• It does not reflect the cost of living or in house hold consumption expenditure as such but only the influence of price fluctuation on the trend.

Main measure of price changes at the retail level Measures changes in the cost of buying a

representative fixed basket of goods and services

Measurement of CPI

The measurement of CPI is based on the collection and compilation of average price of goods and services in the market. The measurement is based upon 4 Steps.

Step 1: Selection of the Base Year:The reference base period is when the CPI is

defined as 100 for a period. Price changes in other years will be in reference to this base year and expressed as a percentage. The base year selected is a normal year in which the economy and prices are stable.

CPI Measurement

Step 2: Selection of CPI Basket

The next step is to select the CPI basket. The term basket refers to the goods and services represented in the index and the relative importance attached to each of the items. This item reflects the typical consumption of a generalhousehold.

Prices of selected goods in the CPI basket must be obtained through reliable sources. The basket is valued at a base year price. Then, the same basket willbe valued at a current year price. The current year price index can be obtained

using the following formula:Current year index = Current year price

x 100 Base year price

The base year index is equal to 100.

CPI Measurement

CPI Measurement

ITEM BASE YEAR PRICE

1

CURRENT YEAR PRICE

2

CURRENT YEAR INDEX

2/1 x 100

Food 150 240 240/150*100=160

Apparel 300 420 420/00*100=140

Medical Care 250 200 200/250*100=80

Transportation 160 180 180/160*100=112.5

Simple CPI= Sum of all current year index/ Number of items

492.5/4=123.1

Therefore, the general price level or costs have increased by 23.1 per cent(123.1- 100) from the base year to the current year.

CPI Measurement

Step 4:WeightageWeightage is the figure used to measure the importance

of the item in the basket depending on the amount of money spent by the consumer on each item. The highest weightage shows the most important commodity and the lowest shows the least important commodity for the consumer. For example, if the weightages for food and transportation are 4 and 1 respectively it shows that food is more important since the amount of money spent on food is 4 times more than transportation.

Assume that weights are given in respect of the items in Table . The weighted CPI can be calculated as shown in the next give Table .

CPI Measurement

ITEM BASE YEAR PRICE

1

CURRENT YEAR PRICE

2

CURRENT YEAR INDEX

2/1 x 100

WEIGHTS4

WEIGHTED

PRICE INDEX

3x4

Food 150 240 240/150*100=160

4 160x4=640

Apparel 300 420 420/00*100=140

3 140x3=420

Medical Care

250 200 200/250*100=80

1 80x1=80

Transportation

160 180 180/160*100=112.5

2 112.5x2=225

Weighted CPI= Sum of all weighted price index/

Total Weights

10 1365/10= 136.5

This shows that the general price level has increased by 36.5 per cent compared to the base year.

Formulas Used in Calculation CPI:

CPI – A DEEPER UNDERSTANDING

•The Indian CPI shows the change in prices of a standard package of goods and services which Indian households purchase for consumption.•When we talk about the rate of inflation in India, this often refers to the rate of inflation based on the consumer price index, or CPI for short.•In order to measure inflation, an assessment is made of how much the CPI has risen in percentage terms over a give period compared to the CPI in a preceding period. If prices have fallen this is called deflation (negative inflation).Consumer Price Index (CPI) in India is reported by the Ministry of Statistics and Programme Implementation (MOSPI), India

Consumer Price Index (CPI) in India averaged 124.27 Index Points from 2011 until 2014, reaching an all time high of 143.70 Index Points in July of 2014 and a record low of 105 Index Points in February of 2011.

  As of September 17, 2014, the consumer price index fell by 0.2%, this is the first decline

since April 2013. Excluding food and energy, core CPI went nowhere, the first unchanged reading since October 2010.

    "While the shelter index increased and the indexes for new vehicles and for alcoholic

beverages also rose, these advances were offset by declines in several indexes, including airline fares, recreation, household furnishings and operations, apparel, and used cars and trucks," noted the BLS.

  On a year-over-year basis, both CPI and core-CPI climbed by just 1.7%, which was below

the 1.9% expected.   All of this gives the Federal Reserve flexibility to keep monetary policy easy and interest

rates low for a long time.  

Chart – current CPI inflation India (yearly basis) – last 12 months

Reference food and agriculture organisation of the united

nations http://www.fao.org/worldfoodsituation/foodpricesindex/en/

WikipediaInvestopediaBusiness standard.com