Measuring prices: Inflation at 10.8% amid doubts on calculation method

Published: April 3, 2012

The average inflation for the first nine months of the fiscal year ending June 30, 2012 came out to 10.8%, below the government’s targeted 12% rate for the year. DESIGN: FAIZAN DAWOOD

ISLAMABAD: 

While inflation officially clocked in at an annualised rate of 10.8% for the month of March, the government’s calculation methods have been called into question after the Pakistan Bureau of Statistics did not incorporate the increase in electricity prices during the month, citing “technical reasons.”

Statistics Secretary Sohail Ahmad announced the numbers on Monday and said that the 38% rise in electricity prices had not been taken into consideration into the calculations of the consumer price index, since that increase was meant to have been charged for fuel price adjustments relating to August 2011, despite the fact that consumers paid for it in March 2012. (The government was unable to charge the increase at the time due to stay orders issued by various courts.)

“There is a technical problem: we cannot calculate an increase in electricity prices made on account of August 2011 but charged in March”, said Shaukat Zaman Butt, prices director at PBS, adding that the bureau did not have any means of calculating these retroactively applied fuel adjustment surcharges in electricity bills. It is unclear if the inflation numbers for August 2011 would be revised.

Yet that logic did not appear to sit well with ordinary consumers, who felt the pain of higher electricity bills anyway.

“In March my electricity bill shot up to Rs5,450 as the state-owned power company charged Rs2,950 on account of monthly fuel adjustment, which was even higher than my regular electricity bill,” said Sanaullah, a consumer in Islamabad.

The electricity price, however, is not the only place where the government appears to have used questionable statistical methods. For the sensitive price index – a basket of 53 essential household items – the government appears to have calculated a 15.4% drop in the prices of milk solely on the basis of the Peshawar Cantonment Board’s decision to hold prices at Rs70 per litre, a price that does not seem to apply on most of the rest of the country.

Butt was unable to justify how the price in just one locality could be used as a proxy for the entire country, especially since the inflation measures are supposed to take prices of all goods from representative markets across the country and average them out.

The government had created PBS to help allay concerns regarding the credibility of official data. It appears, however, that the entity exists largely on paper, leaving most of the statistical legwork in the hands of the statistics division of the finance ministry.

The average inflation for the first nine months of the fiscal year ending June 30, 2012 came out to 10.8%, below the government’s targeted 12% rate for the year. The statistics secretary denied that the numbers had been tampered with on the orders of Finance Minister Abdul Hafeez Shaikh. Despite many of the government’s questionable techniques, core inflation – seen as a more reliable measure of inflation since it excludes the more volatile food and energy prices – crept up to 10.8% and has been steadily rising for the past few months.

The numbers for March surprised many experts who had been expecting a deterioration owing to the government’s worsening fiscal situation and increasing reliance on central bank borrowing. The numbers for April are likely to be worse than those for March as the Oil and Gas Regulatory Authority allowed rises in petrol, diesel, kerosene and compressed natural gas.

Published in The Express Tribune, April 3rd, 2012.

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Reader Comments (6)

  • Apr 3, 2012 - 10:52AM

    Flawed report. First of all the Fuel adjustment surcharge is not applied all across the country – so the impact is always going to be less, plus its there in every month’s bill so the actual impact would not be what the author is making us to believe. On the milk issue again, things are seen in the weighted average scenario and the numbers appear fine. Not everything that the government does is wrong. Get a life

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  • HUM
    Apr 3, 2012 - 10:58AM

    Yep we will charge a lot but won’t tell you how much. Just trust us.

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  • Meekal Ahmed
    Apr 3, 2012 - 4:37PM

    As long as the PBS is not made independent, these things will happen. ALL governments are fond of tampering with data — all kinds of data.

    Yes, the “core” rate is the best measure of underlying inflation. There is also the “core trimmed mean” which is probably better.

    I am surprised that inflation is not seasonally-adjusted. All it takes is a small software program and one press of the computer button. I think we are just lazy people.

    Actually, ALL data should be seasonally-adjusted.

    There will be more inflation down the road — because of lags, sometimes upto 15 months between actions and outcomes..

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  • Apr 3, 2012 - 4:44PM

    There’s this thing called “FINANCIAL CLEANLINESS” which isnt taught anywhere today. Without it, the East and the West, both are dooms.

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  • Ahsan J
    Apr 3, 2012 - 8:05PM

    Dont agree completely with the article, there isnt just one proxy used to calculate price of milk and ther other items in the CPI basket. There are more than 13 Markets that mostly comprise of all the markets in the major cities.
    What I think the article points out, is the inability of Secretary to explain the process.
    As far as the energy price issue goes, it defiantly is not a true representation of the price. I expect some one sane to step in a revise it. usually, SBPs Calculations are more accurate than Statistic dept ones. I would be more interested in SBPs stance on it

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  • Y@$!R
    Apr 3, 2012 - 9:24PM

    alas…another innocent ahmadi got martyred? how many more will be brutally killed like this? inhumane… there will be no action taken by local authorities like always bt yes The highest authority, Allah, the most beneficient, ever merciful has stored something very special for this innocent man n people like him. In His supreme court, there is no injustice.

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