Welcoming CPI rebasing

Price indices are generally rebased and rehashed once in a decade to depict changes in spending practices and culture. Given the rapid pace of technological advancement and changes in spending patterns owing to mushrooming urbanisation and the bulging youth population; realigning the consumer price index and the wholesale price index was much needed and is a welcome change. The primary summary submitted in this regard, to the ECC by the Federal Bureau of Statistics is based on a technical study conducted in-line with the latest classification devised by the United Nations and aims to rebase the index from 2007-08 instead of the current base of 2000-01. The statistical survey conducted in 2007-08 had increased the number of households and cities to 54,309 and 40, respectively. Resultantly, on the basis of the five revised income groups, items in the CPI are to be increased to 487. Within CPI, food weight is to be marginally reduced to 37.48 percent and a similar reduction is being recommended in the house rent sub-index. The wieghtage allotted for clothing and footwear, transport and communication as well as recreation and entertainment have been increased substantially. This makes sense given the fact that the burgeoning youth population is spending relatively larger amounts on communication - mobile phones & internet; while demand for private transport as well as designer labels in apparel is gaining strength in urban centers. There was a comedy of errors some months back in computing inflation in the communication sub-index when PTCL increased its call rates by 50 percent, while the communication sub-index was increased by 40 odd percent. Meanwhile the index had remained silent on changes in usage rates charged on cellular communication even as a thrust of consumers has moved to the latter. The rebasing may do away with such errors. Then the reduction in food index and its rebasing to 2007-08 will also likely revise inflation estimates downwards as spiraling food prices will factor in at a relatively diminished scale. You may see last months CPI numbers being tamed down along with a slight revision in inflation estimates by the central bank as well as independent research houses. The other welcoming fact is that there the house rent component (highest weight in core inflation) will deviate from reflecting changes in prices of building material and labour wages towards changes in actual rents of houses. This will give a clearer picture of the real change in prices and rents; helping policymakers and analysts in forecasting economic conditions more accurately. A regular survey of 6,344 houses will be conducted for the computation of the CPI on a quarterly basis. However, how this exercise will reflect on the monthly statistics churned out under this index, remains to be seen. Still, better reflection in the CPI index of actual price changes will help monetary managers decide on necessary changes to the policy rate. What remains now, is that the FBS and other government organisations administer the intended surveys comprehensively and monitor the results to ensure the efficacy of the soon-to-be implemented changes.