Dominique Guédès

10th October 2007

Fashion and CPI10th meeting of the Ottawa group

Page 2

Fashion and CPID.Guédès 10th October 2007

Summary

› Why clothing is a problem for CPI compilation› What is quality in clothing› Dynamic vision of quality› What can we do for quality adjustment

Page 3

Fashion and CPID.Guédès 10th October 2007

Discrepancy in clothing CPI

Clothing price indices for some european contries

50

75

100

125

150

Jan

96

Jul 9

6

Jan

97

Jul 9

7

Jan

98

Jul 9

8

Jan

99

Jul 9

9

Jan

00

Jul 0

0

Jan

01

Jul 0

1

Jan

02

Jul 0

2

Jan

03

Jul 0

3

Jan

04

Jul 0

4

Jan

05

Jul 0

5

Jan

06

Jul 0

6

Greece

Spain

Italy

Base 100 = 1996

Page 4

Fashion and CPID.Guédès 10th October 2007

Discrepancy in clothing CPI

Clothing price indices for some european contries

50

75

100

125

150

Jan

96

Jul 9

6

Jan

97

Jul 9

7

Jan

98

Jul 9

8

Jan

99

Jul 9

9

Jan

00

Jul 0

0

Jan

01

Jul 0

1

Jan

02

Jul 0

2

Jan

03

Jul 0

3

Jan

04

Jul 0

4

Jan

05

Jul 0

5

Jan

06

Jul 0

6

Greece

Spain

Italy

France

Germany

Base 100 = 1996

Page 5

Fashion and CPID.Guédès 10th October 2007

Discrepancy in clothing CPI

Clothing price indices for some european contries

50

75

100

125

150

Jan

96

Jul 9

6

Jan

97

Jul 9

7

Jan

98

Jul 9

8

Jan

99

Jul 9

9

Jan

00

Jul 0

0

Jan

01

Jul 0

1

Jan

02

Jul 0

2

Jan

03

Jul 0

3

Jan

04

Jul 0

4

Jan

05

Jul 0

5

Jan

06

Jul 0

6

Greece

Spain

Italy

France

Germany

Ireland

UK

Base 100 = 1996

Page 6

Fashion and CPID.Guédès 10th October 2007

Discrepancy in clothing CPI

Gap between clothing price index and total CPI for some european contries

-20%

-15%

-10%

-5%

0%

5%

1 2 3 4 5 6 7 8 9 10 11 12

Greece

Italy

Spain

France

Germany

Page 7

Fashion and CPID.Guédès 10th October 2007

Discrepancy in clothing CPI

Gap between clothing price index and total CPI for some european contries

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

1 2 3 4 5 6 7 8 9 10 11 12

Greece

Italy

Spain

France

Germany

UK

Ireland

Page 8

Fashion and CPID.Guédès 10th October 2007

When do the prices change ?distribution of price changes in CPI according to the situation of the product

Normal observation

Bargain price (in and out) Replacements

With adjustment

Without adjustment

Non observation

Clothing 6 % 37 % 35 % 24 % 11 % 21 %

Durables 37 % 11 % 29 % 28 % 1 % 23 %

Other Industrial products 56 % 13 % 15 % 10 % 6 % 16 %

Food 61 % 16 % 6 % 2 % 4 % 17 %

Services 64 % 3 % 15 % 7 % 8 % 19 %

Total 48 % 17 % 17 % 11 % 6 % 18 %

Page 9

Fashion and CPID.Guédès 10th October 2007

Some price trajectories (winter skirts)

0

20

40

60

80

100

120

140

160

0

10

20

30

40

50

60

70

80

90

0

20

40

60

80

100

120

0

20

40

60

80

100

120

140

160

Page 10

Fashion and CPID.Guédès 10th October 2007

Evolution of average price and index

Winter skirts

70

75

80

85

90

95

100

105

110

115

120

Apr 0

3

Jun

03

Aug 0

3

Oct 03

Dec 03

Feb 0

4

Apr 0

4

Jun

04

Aug 0

4

Oct 04

Dec 04

Feb 0

5

Apr 0

5

Jun

05

Aug 0

5

Oct 05

Dec 05

Feb 0

6

Apr 0

6

Jun

06

Aug 0

6

Oct 06

Dec 06

Feb 0

7

Apr 0

7

Jun

07

Index

Average price

Collection renewals

Base 100, april 2003

Page 11

Fashion and CPID.Guédès 10th October 2007

What is quality ?

› “the evaluation of the quality change is essentially an estimate of the additional amount that a consumer is willing to pay for the new characteristics possessed by the new quality” (CPI manual, chapter 1, 2004)

› Dynamic hedonic approach : model for price with–Brand

–Type of outlet

–Technical features: type of fabric…

–Appearance (fashion): cut, color, accessories…

Page 12

Fashion and CPID.Guédès 10th October 2007

Time evolution of hedonic estimation of quality

Evolution of regression parameters for brand classes

-0,7

-0,6

-0,5

-0,4

-0,3

-0,2

-0,1

0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Brand class 1

Brand class 3

Brand class 2

Reference : class 4

Page 13

Fashion and CPID.Guédès 10th October 2007

Time evolution of hedonic estimation of quality

Evolution of regression parameters for fashion caracteristics

-0,04

-0,02

0

0,02

0,04

0,06

0,08

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Long (versus "medium-sized")

Straight (versus "flared")

Page 14

Fashion and CPID.Guédès 10th October 2007

Time evolution of hedonic estimation of quality

Estimated prices for two types of skirt

42 €

44 €

46 €

48 €

50 €

52 €

54 €

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Long, straight skirt

Flared, medium-sized skirt

Brand class 2, small outlet

Page 15

Fashion and CPID.Guédès 10th October 2007

Different strategies, divergent indices

Price

Time

Page 16

Fashion and CPID.Guédès 10th October 2007

Different strategies, divergent indices

Price

Time

Quality

Time

Page 17

Fashion and CPID.Guédès 10th October 2007

Different strategies, divergent indices

Indices

Time

Without adjustment

Page 18

Fashion and CPID.Guédès 10th October 2007

Different strategies, divergent indices

Indices

Time

Without adjustmentQuality adjustments for replacements

Page 19

Fashion and CPID.Guédès 10th October 2007

Different strategies, divergent indices

Indices

Time

Without adjustmentQuality adjustments for replacementsQuality adjustments at all time

Page 20

Fashion and CPID.Guédès 10th October 2007

Practical solution

› Two kinds of characteristics :–Constant over time quality adjustment

–Changing over time (fashion) no quality adjustment

› Result : about + 0,6 % to year to year evolution.