Inflation : CPI calculation under fire

It’s classic. The CPI (Consumer Price Index), aka “inflation”, starts to hurt… so people start to complain about its calculation and the fact that it doesn’t reflect the “reality felt on the ground“.

First, let’s remember some facts :
-CPI is an index. It is calculated on a “basket” of goods and services.
-each item of the basket has a weight (for instance, food and beverage has a weight of 36,06 in Thailand but 14 in the US, read here )
-of course, expenses of individuals can’t fit exactly this “basket”. Therefore, differences between those statistical figures and the “reality” are unavoidable.
-each country has its own basket and its own set of weights
-therefore it’s doesn’t make sense to compare CPI from differents countries. When thai officials say that “inflation is lower in Thailand than in China or Vietnam” for instance, it is a poor excuse, a fraud.

Then, it’s important to remember that Thailand controls many prices, and even subsidy some services and goods…

When you forbid a company to increase its prices… it doesn’t mean that you “delete” inflation pressures… You merely postpone them… The pressure is mounting, silently, in the background… the businesses face higher costs (for instance raw materials), so they reduce their margins… but at one point the dam can break.

Due to the current energy crisis (but not only), it is likely that the CPI in Thailand will continue to increase.

Amid growing concern that the country’s inflation rate is higher than the official statistics indicate, government economists insist their methods and calculations are an accurate reflection of price increases.

Analysts expect May inflation figures, due for release today, to be sharply higher than the 6.2% figure posted for April, which was a two-year high.

But for consumers who are seeing double-digit rises in prices of food and fuel, the figures don’t seem to add up.

Nateetip Tongkoaon, director of the Trade Economic Indices Bureau of the Commerce Ministry, maintains that the inflation rate is not unrealistically low, noting that rates vary widely across the region depending on local factors.

In April, for instance, while food and fuel costs pushed Thailand’s Consumer Price Index up 6.2% from a year earlier, comparable figures were 3% in Malaysia, 9% in Indonesia, 6% in Singapore and 21% in Vietnam.

The annual inflation rate in 2007 averaged 2.3% but Mrs Nateetip pointed out that the former military-installed government had strictly controlled prices, so producers last year were unable to raise prices to match increasing costs.

This year, producers have been gradually asking for price increase in keeping with higher raw material costs.

The local inflation rate is calculated based on the prices of 373 products and services nationwide, using 2002 as the base year, Mrs Nateetip explained.

The basket covers almost all sectors, including food and beverages, apparel, housing and furnishings, medical and personal care, transport and communication, entertainment, recreation and education. Information is collected based on surveys of real market prices. (Bangkok Post)

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