As if the consistent set of flaws in the current composition of CPI basket isn't enough, in recent months a host of data inconsistencies have emerged in both the CPI and the WPI.
The consistent set of flaws includes the failure to incorporate fuel charges adjustment (FCA) in the electricity prices. At the launch of an inflation study by Prime Institute in Islamabad, PBS officials said that incorporating the FCA is methodologically difficult since fuel price adjustments are announced with a lag, and it will be methodologically improper to revise electricity price readings of prior months every time the fuel price adjustments are announced.
Likewise, there appears to be a consistent understatement of inflation in housing rents. Prime's study, co-authored by Dr Hafiz Pasha, highlighted that housing is a heterogeneous bundle of services with the rent varying by location, size, and quality. This means that the price of a typical bundle of housing has to be derived from a rent-hedonic function, which is not done by the Pakistan Bureau of Statistics (PBS).
In addition to these structural flaws, the last months have witnessed data revisions by the PBS without any notification. According to the August 2015 CPI release, the index for Housing, Water, Electricity, Gas & Fuels sub-basket stood at 179.83. However, in the CPI release for August 2016, the index for that sub-basket has been revised upward to 180.31 - an increase of 48 basis points due to which August 2016 CPI has been understated by about 15 basis points.
Not only has this happened for the second month in a row (July 2015s housing etc index was also revised upward without any notification), but August 2016s data release also reveals a revision in August 2015's WPI number. According to the just-released data, the WPI was 208.42 in August 2015, revised downward from 208.56 when it was first released last year.
These differences may not have a huge impact on the CPI, but it is sure to put off treasurers and asset-side bankers. More importantly, it raises serious question marks over the reliability of CPI and other critical information released by the Pakistan Bureau of Statistics.
Unlike many other PBS datasets, the CPI ought not to be revised without any notification. In fact, recall that the reason why the PBS doesn't incorporate the FCA because, in its own words, it is improper to revise prior periods CPI readings. Yet, here we are revising the Housing, Water, Electricity, Gas & Fuels basket without any reason, or any notification.
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