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People’s perception of prices and official assessments of price increases rarely coincide. This is especially so when the official indices indicate rather low rates of price increases at a time when basic consumer items have risen sharply. The market place gives a different picture to the statistical calculations. The poor are in severe difficulties owing to prices of basic food items and utilities increasing sharply. It is the hardships caused by the increased prices that have caused discontent among people about the cost living and
scepticism about the official calculations.
Credibility of figures
There is lack of credibility of official statistics. The Central Bank of Sri Lanka’s Annual Reports have lost their credibility. Many of the assessments of the economy are deemed political propaganda rather than statements of actual economic conditions. Two statistics of the Central Bank that have drawn criticism have been the annual growth rate and the rate of inflation. Both these are, however, not calculated by the Central Bank though most criticism is directed to it. The national accounts of the country and the monthly consumer price indices are compiled by the Department of Census and Statistics. However, as a user of these data the Central Bank has a responsibility to be sufficiently assured of their integrity. Instead it is believed that the Central Bank is hand in glove with the Department of Statistics to churn out favorable figures. This assertion would, no doubt, be contested by both parties to the alleged misdeed. Since the accusation cannot be proved in “open court”, it remains a matter of conjecture.
The fact, however, is that unlike for many years of the past when the integrity of both the Central Bank and the Department of Census and Statistics was not in question, the credulity of the statistics has become common talk. In Sri Lanka, this deterioration in official integrity is a part of the process of politicisation that has occurred in the country for several years. Important economic documents produced by the government and autonomous agencies sound more like propaganda for the government than objective assessments of the economy. In Sri Lanka, common talk has more than a grain of truth. The grapevine is a source of good information as well as of rumour.
Consumer Price Index
The accuracy of a price index depends on the basket of consumption items selected, the weightage assigned to each item and the methods of collecting the price data. The basket of commodities selected should, as far as possible, be representative of the consumption pattern of the particular economic class. In order to ensure this, the basket is decided on the basis of consumption obtained in surveys such as the Consumer Finances and Socio Economic Survey of the Central Bank or the Household Income and Expenditure surveys of the Department of Census and Statistics.
Once a basket is selected it is important that this basket is not altered. If there are changes in the items in the basket or their weights, then the comparisons over time would not reflect changes in the cost of living. Dropping items on the basis that commodities like alcohol are either unhealthy or unethical is a distortion of the index, as these items are selected because they are representative items of consumption. Similarly, it is incorrect to drop items of consumption on the grounds that they are not consumed as they are too expensive. Substitution of one item for another is only permitted when it is inevitable and in such an eventuality it must be substituted by a similar commodity. For instance, if a particular brand of soap is no longer available, then it may be substituted by the closest similar other brand in the market. The issue is whether such principles and others are observed. Information from the grapevine suggests that there are serious violations of these principles.
Perceptions
Even when an index is properly calculated, there could be difference in people’s perception from that of the index. This happens often owing to several reasons. One common reason is that each consumer has her or his different consumption pattern. The prices of these could vary from that of the average consumption basket used by the index. For instance, someone, who consumes a lot of alcohol, would find his expenses rising more if alcohol prices are increased substantially.
On the other hand, a household that is a self-sufficient and consumes very little from the market would not feel the price increases in the market much. In the current context those who consume milk powder, dhal, imported fruits, consume much electricity and gas, would find their cost of living rising sharply. Therefore, however correctly an index is computed, there could be a difference in the rise in the cost of living that is computed and popular perception. Sometimes the popular perception may be more accurate than the index. Sometimes the popular perception may not be based on facts.
Rate of increase
Statistics of a lower inflation rate is generally received with scepticism by the general public. There are many reasons for this. The public perception of inflationary trends is often based on a misunderstanding of the statistics on inflation. The deceleration in inflation is not believed as it is often understood as a decline in prices. This is certainly not the case. What it means is that the rate of increase has declined. Prices are still continuing to increase though at a lower rate. When people experience further increases in prices, they tend to disbelieve that the rate of inflation has declined, as prices of commodities have not decreased. If the annual rate of inflation were to be 8 percent this year, what this means is that average prices rose by 8 percent. This is an increase on top of last year’s increase in prices.
Cost of Living
Despite these observations, both national and international assessments are based on the figures in the Colombo Consumers Price Index. On this basis we have had a relatively low rate of price increases. The public, on the other hand, are of the view that prices have increased by a high rate.
International perception
The international perception of price increases based on the Department of Census and Statistics is a very favourable one. The most recent instance of this was at a SAARAC conference on May 16, 2012. Speaking at the annual SAARCFINANCE Governors’ Symposium in Nepal; Dr Sultan Hafeez Rahman, former Director General, South Asia Department of the Asian Development Bank (ADB) said that in comparison to other countries in SAARC Region, Sri Lanka is seen as the country where poverty levels would be least affected by food prices. This is music to the ears of the government.
The perception of many economists in Sri Lanka and, perhaps the public, is quite different. The increases in prices of basic items have driven the poor to desperate conditions. In fact, the downside of the recent policy measures is that they have increased the costs of the living of the lower income groups and increased their deprivations. The poor can’t live on statistics.
http://www.nation.lk/edition/opinion/item/6442-col-perceptions-and-calculations-of-price-increases.html
http://www.nation.lk/edition/opinion/item/6442-col-perceptions-and-calculations-of-price-increases.html
scepticism about the official calculations.
Credibility of figures
There is lack of credibility of official statistics. The Central Bank of Sri Lanka’s Annual Reports have lost their credibility. Many of the assessments of the economy are deemed political propaganda rather than statements of actual economic conditions. Two statistics of the Central Bank that have drawn criticism have been the annual growth rate and the rate of inflation. Both these are, however, not calculated by the Central Bank though most criticism is directed to it. The national accounts of the country and the monthly consumer price indices are compiled by the Department of Census and Statistics. However, as a user of these data the Central Bank has a responsibility to be sufficiently assured of their integrity. Instead it is believed that the Central Bank is hand in glove with the Department of Statistics to churn out favorable figures. This assertion would, no doubt, be contested by both parties to the alleged misdeed. Since the accusation cannot be proved in “open court”, it remains a matter of conjecture.
The fact, however, is that unlike for many years of the past when the integrity of both the Central Bank and the Department of Census and Statistics was not in question, the credulity of the statistics has become common talk. In Sri Lanka, this deterioration in official integrity is a part of the process of politicisation that has occurred in the country for several years. Important economic documents produced by the government and autonomous agencies sound more like propaganda for the government than objective assessments of the economy. In Sri Lanka, common talk has more than a grain of truth. The grapevine is a source of good information as well as of rumour.
Consumer Price Index
The accuracy of a price index depends on the basket of consumption items selected, the weightage assigned to each item and the methods of collecting the price data. The basket of commodities selected should, as far as possible, be representative of the consumption pattern of the particular economic class. In order to ensure this, the basket is decided on the basis of consumption obtained in surveys such as the Consumer Finances and Socio Economic Survey of the Central Bank or the Household Income and Expenditure surveys of the Department of Census and Statistics.
Once a basket is selected it is important that this basket is not altered. If there are changes in the items in the basket or their weights, then the comparisons over time would not reflect changes in the cost of living. Dropping items on the basis that commodities like alcohol are either unhealthy or unethical is a distortion of the index, as these items are selected because they are representative items of consumption. Similarly, it is incorrect to drop items of consumption on the grounds that they are not consumed as they are too expensive. Substitution of one item for another is only permitted when it is inevitable and in such an eventuality it must be substituted by a similar commodity. For instance, if a particular brand of soap is no longer available, then it may be substituted by the closest similar other brand in the market. The issue is whether such principles and others are observed. Information from the grapevine suggests that there are serious violations of these principles.
Perceptions
Even when an index is properly calculated, there could be difference in people’s perception from that of the index. This happens often owing to several reasons. One common reason is that each consumer has her or his different consumption pattern. The prices of these could vary from that of the average consumption basket used by the index. For instance, someone, who consumes a lot of alcohol, would find his expenses rising more if alcohol prices are increased substantially.
On the other hand, a household that is a self-sufficient and consumes very little from the market would not feel the price increases in the market much. In the current context those who consume milk powder, dhal, imported fruits, consume much electricity and gas, would find their cost of living rising sharply. Therefore, however correctly an index is computed, there could be a difference in the rise in the cost of living that is computed and popular perception. Sometimes the popular perception may be more accurate than the index. Sometimes the popular perception may not be based on facts.
Rate of increase
Statistics of a lower inflation rate is generally received with scepticism by the general public. There are many reasons for this. The public perception of inflationary trends is often based on a misunderstanding of the statistics on inflation. The deceleration in inflation is not believed as it is often understood as a decline in prices. This is certainly not the case. What it means is that the rate of increase has declined. Prices are still continuing to increase though at a lower rate. When people experience further increases in prices, they tend to disbelieve that the rate of inflation has declined, as prices of commodities have not decreased. If the annual rate of inflation were to be 8 percent this year, what this means is that average prices rose by 8 percent. This is an increase on top of last year’s increase in prices.
Cost of Living
Despite these observations, both national and international assessments are based on the figures in the Colombo Consumers Price Index. On this basis we have had a relatively low rate of price increases. The public, on the other hand, are of the view that prices have increased by a high rate.
International perception
The international perception of price increases based on the Department of Census and Statistics is a very favourable one. The most recent instance of this was at a SAARAC conference on May 16, 2012. Speaking at the annual SAARCFINANCE Governors’ Symposium in Nepal; Dr Sultan Hafeez Rahman, former Director General, South Asia Department of the Asian Development Bank (ADB) said that in comparison to other countries in SAARC Region, Sri Lanka is seen as the country where poverty levels would be least affected by food prices. This is music to the ears of the government.
The perception of many economists in Sri Lanka and, perhaps the public, is quite different. The increases in prices of basic items have driven the poor to desperate conditions. In fact, the downside of the recent policy measures is that they have increased the costs of the living of the lower income groups and increased their deprivations. The poor can’t live on statistics.
http://www.nation.lk/edition/opinion/item/6442-col-perceptions-and-calculations-of-price-increases.html
http://www.nation.lk/edition/opinion/item/6442-col-perceptions-and-calculations-of-price-increases.html
