Index shows how HK families spend their money

THE Consumer Price Index (CPI) serves as an indicator of the price level of goods and services purchased by households for daily consumption.

You must have heard about inflation rate. It is calculated as the rate of increase of the CPI in a certain reference period over that in the same period a year ago. How do we actually compile the CPI? First, determine a fixed basket of goods and services commonly purchased by households; second, carry out a continuing pricing survey to find out the cost of this basket of goods and services.

A basket of goods and services is determined on the results of ''Household Expenditure Surveys'' (HES). For this conceptual basket, we are particularly interested in the relative amounts of money spent on different types of goods and services.

The HES is carried out once in five years. Households covered by the HES are divided into three groups - at lower, medium and higher expenditure levels.

Households at the lower expenditure level are likely to spend a larger proportion of their money on daily necessities, while those at the higher expenditure level would spend more on other items such as clothing and services.

Correspondingly, three CPIs are produced - CPI (A), CPI (B) and Hang Seng CPI - which relate closely to those three groups of households. Their movements will in time respectively show the different impact of price changes on the different groups of households.