Govt changing formula to measure inflation

The federal government has decided in principle to change the formula for determining the rate of inflation in the country and in this, the Pakistan Bureau of Statistics (PBS) had started the preliminary work, sources said on Saturday.

According to the sources, the authorities would alter the ratio and weightage of the items included in the basket for determining the Consumer Price Index (CPI) and Sensitive Price Index (SPI) to calculate the rate of inflation and price hike.

Besides, the sources further said, in the process of firming up the new formula, the population of rural and urban areas and their share in the gross domestic product (GDP) and the inflation will also be reviewed to remove the unrealistic difference in the proportion of the population and the rate of inflation.

For example, the sources said the population of Karachi, which was included in the inflation basket, had been around 10% of the country's population, but its weightage to calculate the inflation is 40%. “The new formula will reduce the weight and proportion of Karachi in the inflation basket,” a source said.

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A senior official of the PBS said that the formula to determine the inflation rate had to be revised every 10 years. “The current formula is in vogue since 2015-16. Prior to it the base year was 2007-08,” the official added.

However, the official continued, it was not a legal requirement to review the formula every 10 years. “It sets a precedent for regulating the pricing mechanism in the country and the formula can be revised even earlier,” the official added.

The formula for determining inflation is worked out as per international practices, as the figures calculated on its basis are used by global institutions, including the International Monetary Fund (IMF) and the World Bank, in regional comparative studies.

“Therefore, the formula is to be worked out by keeping in consideration all aspects so that the statistics determined on the basis of that have the confidence of the international institutions,” the official said, adding that the process for a new formula would take time.