Consumer Price Index: Govt changes method for calculating inflation
Inflation rises 11.6% in August, according to Federal Bureau of Statistics.
ISLAMABAD:
The government has changed its inflation calculating methodology to depict changes in spending practices and that has brought down inflation numbers in August compared to the same month a year earlier.
Under the new formula, the base year of 2001 for calculating inflation has been replaced with the year 2008.
According to the Consumer Price Index (CPI) – a key barometer to record price movements in essential items, inflation in August rose 11.6% as compared to the corresponding period of last year, said Federal Bureau of Statistics (FBS) Director General Arif Cheema, while speaking at a press conference on Tuesday.
Had the inflation been calculated on the basis of 2000-01 methodology, it would have risen 12.4%, he added.
The government conducted a statistical survey in 2007-08 and decided to increase the number of cities and essential items in the inflation index. The number of cities has been increased from 35 to 40 and essential items from 374 to 487, said Cheema.
The FBS has also increased commodity groups from 10 to 12 and their weight in the index has also been altered.
“The major change is the way the FBS calculates house rent. Previously, we used to calculate the increase in house rent by looking at changes in construction and labour wages and now it will be calculated on the basis of actual rent of houses,” said Cheema.
A regular survey of 6,344 houses will be conducted for computing CPI on a quarterly basis.
Another major change is in the weight of food group that has been reduced to 34.83% from 40.84%. This will restrict the rise in overall inflation. Any supply shock or a seasonal increase in demand makes a big impact on the overall inflation numbers.
The weight allotted to clothing and footwear, transport and communications as well as recreation and entertainment has been changed substantially.
The FBS said prices of food and non-alcoholic beverages had increased by 13.2% in August over a year ago. The bureau created a new group of alcoholic beverages and tobacco and assigned it 1.41% weight. Its prices increased 7.2% in August.
Clothing and footwear group’s weight was realigned to 7.6% from 6.1% and it saw an increase of 13.7% in August.
The FBS merged house rent and fuel and lighting groups and created a housing, water, electricity, gas and fuel group with a new weight of 29.4%. Its prices rose around 8% in August.
The FBS also increased recreational and culture group weight to 2.03% from 0.83%. On the basis of new weight, recreation and culture group prices increased 5.8% in August.
Another new group – restaurant and hotels – has been created with a weight of 1.23%. Its prices in August soared 18.5%.
Average inflation in first two months (July-August) of the current fiscal year increased around 12%, said the FBS. Had this number been calculated on the basis of old methodology, it would have been recorded at 12.3%, said Cheema.
Published in The Express Tribune, September 21st, 2011.
The government has changed its inflation calculating methodology to depict changes in spending practices and that has brought down inflation numbers in August compared to the same month a year earlier.
Under the new formula, the base year of 2001 for calculating inflation has been replaced with the year 2008.
According to the Consumer Price Index (CPI) – a key barometer to record price movements in essential items, inflation in August rose 11.6% as compared to the corresponding period of last year, said Federal Bureau of Statistics (FBS) Director General Arif Cheema, while speaking at a press conference on Tuesday.
Had the inflation been calculated on the basis of 2000-01 methodology, it would have risen 12.4%, he added.
The government conducted a statistical survey in 2007-08 and decided to increase the number of cities and essential items in the inflation index. The number of cities has been increased from 35 to 40 and essential items from 374 to 487, said Cheema.
The FBS has also increased commodity groups from 10 to 12 and their weight in the index has also been altered.
“The major change is the way the FBS calculates house rent. Previously, we used to calculate the increase in house rent by looking at changes in construction and labour wages and now it will be calculated on the basis of actual rent of houses,” said Cheema.
A regular survey of 6,344 houses will be conducted for computing CPI on a quarterly basis.
Another major change is in the weight of food group that has been reduced to 34.83% from 40.84%. This will restrict the rise in overall inflation. Any supply shock or a seasonal increase in demand makes a big impact on the overall inflation numbers.
The weight allotted to clothing and footwear, transport and communications as well as recreation and entertainment has been changed substantially.
The FBS said prices of food and non-alcoholic beverages had increased by 13.2% in August over a year ago. The bureau created a new group of alcoholic beverages and tobacco and assigned it 1.41% weight. Its prices increased 7.2% in August.
Clothing and footwear group’s weight was realigned to 7.6% from 6.1% and it saw an increase of 13.7% in August.
The FBS merged house rent and fuel and lighting groups and created a housing, water, electricity, gas and fuel group with a new weight of 29.4%. Its prices rose around 8% in August.
The FBS also increased recreational and culture group weight to 2.03% from 0.83%. On the basis of new weight, recreation and culture group prices increased 5.8% in August.
Another new group – restaurant and hotels – has been created with a weight of 1.23%. Its prices in August soared 18.5%.
Average inflation in first two months (July-August) of the current fiscal year increased around 12%, said the FBS. Had this number been calculated on the basis of old methodology, it would have been recorded at 12.3%, said Cheema.
Published in The Express Tribune, September 21st, 2011.