The 1995/1996 Household Income, Expenditure - (PDF, 101 mb ...

V.C.2 Implementation of Current Weights
V.7
CAPMAS's experience provides an intuitive example for the costs of
institutional inertia. A considerable effort was made in the last survey to
implement the weights faster into the CPr. Fieldwork was completed on
October I, 1991. The weights were prepared by the analysis phase in
December of 1993, but were not brought into the official index until January
of 1996. This means that more than three years passed before making use of
the "new" information. By that time the market basket was no longer current
and the index no longer represented what Egyptians purchase. Many changes
had occurred in consumer spending habits, and for a variety of reasons. Still
this was a considerable improvement over the previous survey: it was not
until July of 1988 that the weights from the 1980/81 HIECS were used.
As countries develop, their households become richer and are able to
spend larger shares of their budgets on luxuries. If price changes over time
include relative price changes between luxuries and necessities, then the cost
of living index becomes a function of the relative economic standing of
households, and no longer properly reflects the "cost-of-living."
To reiterate, in rapidly changing economies such as Egypt, delay in
incorporating budget share weights from the HIECS in the price index means
that the substitution bias built up since the last implementation of weights
remains. On the day that the data from the last validated questionnaire was
processed - November 21, 1996 - CAPMAS had in its possession the least
biased and most precise representation of the annual expenditure shares of
Egyptian consumers possible, under current circumstances. Each additional
day of delay has effectively removed, bit by bit, the relevance of the HIECS
for eliminating substitution bias. Studies have found that the length of delay
in incorporating current weights is positively related to the size of the bias.
V.C.3 Representation of New Weights
Since 1990/1991 new items have gained importance in consumer budgets
and old items have lost importance. The most efficient selection of market
basket goods is an optimal tradeoff between the size and precision of
representation of items and the administrative burden associated with pricing
the basket. CAPMAS sacrifices variety in its concentration on item types. A
number of the HIECS budget items have such small weights that they can
effectively be deleted from pricing lists. Some goods may be selected despite
their small weight due to unrelated criteria, such as strategic importance,
cultural or geographical differences in taste, etc.
Other goods require particular attention because of changing realities.
Utilities and building materials prices have been a proxy for housing costs,
but with eventual rent decontrol the need for careful outlet selection and
proper imputation of owner's equivalent rent become obvious. There are also
theoretical concerns about separating the investment component of housing
expenditure from its consumption components. Private automobiles prices
should reflect more than status, and CAP MAS should move beyond imputations
that equate value with the costs of petrol and oil, maintenance, and tires.
The quality of education and medical care has certainly changed over the
years. New inventory goods, such as computers, faxes, and cellular phones,
have already changed the daily communication habits of many Egyptian
households.