3.5 Regional weighting of the consumer price index

The first step in calculating the consumer price index is to compute a separate index for an individual price observation or variant, i.e. a particular product (say a 500 gramme packet of coffee beans for filter machines) sold in a particular shop:

i.e. the price of this particular brand of coffee has dropped by 28 per cent since base period (72-100= - 28).

Next, the geometric mean (G) is calculated from the price ratios for the variants of the same commodity and region. The following example shows the geometric mean of the price ratios for these packets of coffee in the region of Uusimaa.

i.e. the coffee packet index for the whole of Uusimaa is 69.

Regional weights are used when calculating the consumer price index for the whole country. The country is divided into six regions (NUTS 2 regions): Uusimaa, Southern Finland, Eastern Finland, Mid-Finland, Northern Finland and Åland. Regions with a large population and with a high value of consumption receive greater weight in the consumer price index than smaller regions. Regional weights are not used in any other Statistics Finland price or cost indices.

The Table below shows the indices and weights for coffee packets in the different regions:

The weight for Uusimaa, for example, is 125,000 and its index 69. The total value of coffee consumption for the whole country is 479,500.

The weighted mean for the coffee indices is calculated as follows:

The higher weights for Uusimaa and Southern Finland have the effect of lowering the total index score (= 71.4). Without weighting, the arithmetic mean of the indices for the six regions would be 81.3.