Barbados' Retail Price Index Has Been Updated

In 2022, the world confronted unprecedented inflation rates, the highest in several decades. This inflationary period, fuelled by supply chain disruptions, logistic challenges, and rising interest costs, significantly increased the volatility of prices, thereby escalating costs for businesses and consumers alike. This scenario highlights the critical need for effective tracking and measurement of inflation.

Responding to this need, the Barbados Statistical Service (BSS) launched a revised Retail Price Index (RPI) series in January 2023, adopting July 2018 as the new base period.This shift in the base period from 2001 to 2018 enhances the precision in reflecting current consumer price level changes by incorporating more recent consumption pattern changes.

For the updated retail price index, the BSS employed a revised basket of goods and services, collecting price quotations from a representative sample of outlets across the island. The selection of items and outlets for this revised basket drew on data from the latest Survey of Living Conditions (SLC) conducted in 2016-2017. The index weights combine average expenditure shares from the 1998 Household Budget Survey (HBS) and the Survey of Living Conditions, aiming to mitigate the impact of temporary measures during the Survey of Living Conditions enumeration. This revision introduced new groupings and refined existing ones to enhance the retail price index's accuracy in measuring the current cost of living in the consumer market.

Over the past two decades, Barbados has experienced significant shifts in consumption patterns, mirroring its economic and social progression. Notable improvements in human development since 2001 are evident, with increases in average life expectancy, educational attainment, and a higher standard of living as indicated by the gross national income per capita. According to Engel's Law, as income and expenditure rise, the proportion of income spent on food decreases, even though absolute food expenditure increases. In Barbados, the proportion of food and non-alcoholic beverages in the consumer basket has decreased by 8 percent compared to the 2001 average. Additionally, development levels also influence service demand preferences. Healthcare spending responsiveness to income changes varies with the country's income level (Farag et al., 2012)[1]. Notably, expenditure on education, recreational & cultural activities, and restaurants & hotels (influenced primarily by dining and lunch services) now constitute larger portions of the average consumer basket.

Increased spending on education can foster national development if it leads to a more skilled workforce earning higher incomes. However, the growing share of health expenditure in the overall consumption budget may indicate increased spending due to rising cases of non-communicable diseases among Barbados' aging population, presenting lasting budget implications.

[1]Farag, M., Nandakumar, A., Wallack, S., Hodgkin, D., Gaumer, G., & Erbil, C. (2012). The Income Elasticity of Health Care Spending in Developing and Developed Countries. International Journal of Health Care Finance and Economics, 12, 145-162.

Retail Price Index Major Component Weights

July 2001=100 vs. July 2018=100