THE HOUSING COMPONENT IN THE CONSUMER PRICE INDEX

Abstract

The Household Expenditure Survey (HES) was carried out in May 1956 in order to compute the Consumer Price Index for 1960. Quinquennial revisions of the weightages since 1972/73 have reflected the change in the standard of living. In the 1992/93 HES, Housing accounted for 21.9% of all consumers' expenditure, second only to food (at 26.4%). The Accommodation sub-group of the Housing component is computed by taking into account the Imputed Rent, which is the Annual Value as supplied by the Chief Assessor at the Inland Revenue Authority of Singapore. Due to the high levels of owner-occupancy in Singapore coupled with the high cost of housing, the present housing expenditure for accommodation is in the form of mortgage repayments. The current method of computing Accommodation expenditure in the CPI is therefore not reflective of the situation, and a more realistic method of imputing the Housing component into the CPI should be adopted. After the mortgage repayment method is used, a significantly different CPI results. Over the period from 1985 to 1995, the Proposed CPI is lower than the Current CPI in the beginning of the study in 1985 (81.80 compared to 87.20). Subsequently, the Proposed CPI is higher than the Current CPI at the end of the study in 1995 (113.88 compared to 105.43). The Proposed records an increase of 39.22 percent, whereas the Present CPI only shows an increase of 20.91 percent. This shows that price levels grew by a greater amount in the Proposed method, than they did in the Current method. The findings may prove to be the impetus for a revision of the method of computing the CPI in Singapore.