Multiple inflation indices might well be needed

18 May, 2018 - 00:05 0 Views

eBusiness Weekly

Zimbabwe’s official inflation rate is both low and, despite a lot of comment to the contrary, accurately and competently calculated by the Zimbabwe National Statistics Agency: the main problem is that for a fair number of people the information is not that useful.

We need to understand what, in fact, the official inflation figures measure. They tell us the changes in the cost of living for what is used to be called the lower-income urban family.

ZimStat spent a lot of time and effort on researching what the “average” family in this group spends each month on housing, transport, various categories of food, services such as school fees, utilities such as light and power, and so on.

This allowed the agency to create a basket of goods and services and assign to each of the scores of items a weighting, based on what percentage of family spending went on that item. Thus each month all that is required is to find the cost of each item, feed it into the model and then see the result, with changes for a month and year being automatically calculated. At times the basket needs to be updated to reflect the average reality.

The result shows that for the lower-income urban family there is little change in their cost of living. This is largely owing to the deliberate policy decision by the Government and the Reserve Bank of Zimbabwe in how priorities are set. When people look at the basket they will see that prices of basic food do remain fairly stable. Maize, wheat and oil seeds are either grown in Zimbabwe with the producer prices and GMB sale prices fixed, or are imported using dollars acquired at the official 1-1 rate on the RBZ priority system.

Meat and vegetables have prices set by market forces, but with stockfeeds again made of materials grown locally or imported on the priority system, vary marginally in price with the only changes being seasonal variations of availability, such as pricier vegetables in winter and more expensive meat at year end as farmers wait to fatten stock on the new grass.

Rents, school fees, rates, electricity charges and the like have not changed for some time. Transport costs for those using kombis are still the same. While fuel costs are inching up in line with global oil prices, and spares are definitely pricier, the collapse of what amounted to a police protection racket has given both bus-owners and kombi-drivers, their contractors, a bit of a buffer.

Even the very small percentage of family income that goes on non-essentials, such as alcohol, soft drinks, tobacco, confectionary and even tinned and processed food, goes almost entirely on products made in Zimbabwe, and most of these have either not changed in price or only changed moderately. But even a 40 percent jump in something that a family spends 0,5 percent of its income on is not going to make a big change in the cost of living.

The three-fold price structure some small shops use is not taken into account, ZimStat use actual prices, not discounted cash prices, so a poor person with a pure cash income may well have a sharp drop in their cost of living.

However, a lot of people, including many readers of The Business Weekly, are not living as a lower-income urban family. The percentage of their income going on non-essential goods is far higher, and non-priority imports either of raw materials for local manufacture or as finished products is significant. They still benefit, as do the poor, from priority maize, priority bread and even priority fuel, and their rents are also pretty stable along with electricity and school fees. So their jump in cost of living is well below the 50 percent premium for parallel US dollar notes. But it is also well above the 2,72 percent increase over the last year for the urban poor.

It has been suggested that ZimStat could re-launch their second index, the one that used to measure the cost of living for an upper-income urban family. This was a stage between the old days of separate indices for settler and indigenous families and the present position. This would involve research, getting several hundred upper-income urban families to record every purchase and every item bought for several months to get a basket and the weightings. Might it be useful for planners to see what the upper limit on cost-of-living increases amounts to? Though even if such an index had existed a year ago it would need adjustment as the majority of these families have changed consumption to include more local and less imported goods.

More useful would be industrial, mining and agricultural inflation figures. These could use data channelled by representative organisations to give an indication of how much manufacturing and mining costs have risen, or fallen, and how much it actually costs to produce a tonne of maize or wheat. Again the could be large variations between companies, depending on how much of their raw materials and essential imported inputs are covered by priority payments, but it would produce data that could not only indicate where the weaknesses are, but also expose opportunities for local supplies to fill an expensive hole.

A number of countries measure their procurement inflation. This does not really excite voters or those negotiating for wage rises, but does tell those in business and those in authority crafting policies to encourage economic growth where opportunities and bottlenecks exist, and to obtain these sort of data it might well be an advantage to allocated ZimStat more funds.

Basically, what we are saying is that critics of ZimStat should find out what ZimStat measures, and if it is not measuring something they want to know they should work out ways of having that measured, not assume that ZimStat is cheating or doing a crummy job. The professional statisticians are doing their job properly and the figures they produce are accurate and useful; if they are to do more then agreements on just what extra is needed, and who funds it, are required.

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