Rebased CPI treats energy the right way!

BR Research September 6, 2019

The Pakistan Bureau of Statistics (PBS) has earned applause. The long awaited rebased CPI is here and the initial impression is heartening. The PBS was repeatedly called out to alter the methodology used for calculating energy related price changes, as simple averages were simply not enough (read: CPI rebasing: no more simple averages please!). Whether or not the new methodology has let go of the simple averages for all other sub indices will be known soon, but fresh treatment, of energy prices is a very refreshing start.

Eyebrows were raised as the rebased CPI showed year-on-year change in electricity prices at negative 0.79 percent. If any of the many dozen government spokespersons saw that, they would have a field day on talk shows later. It turns out that the PBS has incorporated the monthly fuel price adjustment component of electricity tariff, in its calculations. No matter how straightforward it sounds, it was not part of the previous methodology, and never truly reflected the actual price change of electricity.

The altered methodology will now be more reflective of changes in international fuel prices and that of the massively altered energy fuel generation mix.

Even bigger change in methodology relates to the adoption of weighted average of electricity consumption – instead of the previously used simple averages. For a sector as documented as power, it never made sense to use simple averages to arrive at price changes, when detailed numbers for every consumption slab were readily available. The PBS has said good bye to simple averages, at least, for electricity and gas. You now have energy prices reflected as close to the reality as possible. Well done to the PBS!

In terms of impact, the electricity change which is negative year-on-year for August 2019 will be close to 18 percent for September 2019. Nepra has determined fuel price adjustment for July 2019 at Rs1.93 per unit, which will be reflected in the electricity bills for September 2019. This works out at close to 19 percent year-on-year increase for electricity. The joy may well be short-lived. September 2019 will see another tariff change, as per the IMF’s structural benchmark, which will keep the power CPI up. For now, full marks to the PBS for doing the right thing!

Copyright Business Recorder, 2019




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