The consumer price index (CPI) is one of the most useful indicators of inflation. It measures the change in the prices of a fixed basket of goods and services commonly purchased by the majority of households. The types and specifications of goods and services in the CPI basket as well as their quantitative proportions are kept constant to ensure that any changes in the index reflect solely price changes.

This CPI series is computed based on the results of the Household Expenditure Survey (HES) conducted from November 1997 to October 1998. For each item, the average price during November 1997 to October 1998 is taken to be 100 index points from which indices of subsequent periods are compared to measure price change. The CPI is compiled on a monthly basis. For longer periods, the index is derived by averaging the monthly indices. Similarly, the whole-year index is calculated by taking the simple average of the 12 months’ indices for the year.

To indicate monthly change, the difference between the index of the month and that of the preceding month expressed in percentage term is used. This measures the change in average prices between the two months and serves as a useful short-term indicator of price movement. For measuring annual changes at one point of time, the index of the month is compared with that of the same month in the preceding year. Likewise, the annual inflation rate for any year is computed by comparing the average for the 12 monthly indices with that of the preceding year.

The data series on CPI and its major components are seasonally adjusted using the X-12 procedure. Seasonal adjustment is the process of estimating and removing seasonal effects from a time series. Since seasonal effects (resulting from changing climatic conditions, production cycles, holidays and sales) could mask the underlying trend, seasonally adjusted data reflect better the underlying price trends.

The unadjusted data series could, however, be preferred by consumers who are concerned with the prices they actually pay.