ISLAMABAD, April 10: There is a flaw in measurement of inflation as it is based on the survey of only 30 per cent population living in the urban countryside as against more than 70 per cent rural consumers, who are altogether ignored while measuring the inflation rate.
Informed sources told Dawn on Monday that the inflation measured through Consumer Price Index (CPI) covered only 35 urban cities for recording percentage change in prices of 374 various consumers’ items during a specific period as compared to the prices of the same items during a standard period — base period.
According to the sources, the CPI is being issued at the national level only, not for the provinces, cities and districts to actually determine the raise in the prices of goods and services, which may help the existing investors to expand their business in the country but also to attract new investment.
The sources said ironically, the government had also included the Utility Stores, which sell goods at cheaper price to the consumers than the normal market price, in the list of items for calculating the national average prices, which was again violation of the methodology.
The Federal Bureau of Statistics (FBS) is also calculating the house index on the basis of increase in prices of inputs used in the construction of houses instead of the actual rent being collected from the market.
The base period was revised after 10 years in the year 2000-01 for CPI to calculate inflation. As the base period is worked out on the consumption pattern of consumers, which changes with the passage of time, thus called for revision after every five years.
The base year is likely to be revised from 2006-07, which would represent the new consumption pattern of the general public, the sources said adding that a family budget survey will be started soon to infer the new consumption pattern and select the items in the light of the new pattern.
According to the sources, there is no single true measure for calculating inflation, because the value of inflation will depend on the weight and magnitude of changes in their prices given to each good in the index.
The sources said that one could not rule out the possibility that some inflation figures deliberately exclude volatile goods from the basket to be able to gauge the “core” rate of inflation.
The statistics showed that people had reduced their monthly budget on the food items, including medicines and diverted it to meet the cost of utilities — gas, electricity and telephone — because of uneven raise in their prices and transportation which became costlier because of the high fuel prices in international market.
On the other hand, the FBS is computing two other types of price indices— Wholesale Price Index (WPI) and Sensitive Price Indicator (SPI) with base period 2000-01. The SPI is the small part of CPI and is issued on weekly basis.
The SPI comprises of retail prices of only 53 essential items and covers 17 cities. SPI is used to view the price fluctuations at short intervals of time, while WPI measures the wholesale prices of various items collected from 18 wholesale markets of the country. However, the WPI could not be compared with CPI and SPI.
“It can not be a real substitute of CPI as all of the items in both the indices are not common, therefore, the situation being observed in WPI would not be necessarily the same for CPI,” the sources added.
Due to these changes, the movement recorded in the wholesale price of an item may not be reflected immediately in the retail price except the direct prices of petroleum. However, it can be an indicator to assess the fluctuation in CPI in future, the sources added.
The sources said most of the items covered in WPI are different from the items being covered in CPI. “If the same items in both the indices are used to construct these indices, the profiteering of wholesalers and retailers can be measured,” they said.
The sources also proposed to introduce a new index for the producers to measure the gap amongst the wholesalers and the producers. The profit margin can be viewed by measuring the gap between the WPI and the Index for the producers, they added.
Analysts said that inflation also penalises those living on fixed wages or pensions. “If inflation is not compensated by nominal increases of income, people become poorer,” they added.
