CPI methodology to be reviewed

Wednesday, May 16, 2012

Pretoria - The methods used to calculate the Consumer Price Index (CPI) and the Producer Price Index (PPI) are to be reviewed, Minister in the Presidency for National Planning Trevor Manuel said on Tuesday.

Tabling the Budget Vote of Statistics South Africa (Stats SA) in the National Assembly, Manuel said the statistical body had to maintain the accuracy of the statistics it produced. It was equally important that the data on which the stats were based be an accurate reflection of reality.

"For this reason, it [Stats SA] needs to update its methodologies and surveys from time to time," he said of the CPI, which a few years ago was radically overhauled.

CPI is improved through the usual periodic update of the basket of goods and services that are priced each month, referred to as re-weighting, as well as changing the reference period of the index, i.e. rebasing.

The revised CPI will be released in February 2013.

"This revision of the CPI is being done to ensure that the relative expenditure weights in the CPI reflect the changing behaviour of households and remain relevant and accurate," explained Manuel.

The basket of items that form part of the CPI is derived from the Income and Expenditure Survey, where the sample of 30 000 households are expected to maintain a diary of consumption for a 12 month period.

Additionally, the Producer Price Index (PPI) is being re-engineered in a process that started in 2009. This will result in a parallel set of releases.

The PPI for manufacturing will be separated into two different price indices. The first PPI for manufacturing of goods for further processing only includes goods in its basket that will be used again elsewhere in the manufacturing process, such as basic steel that will be used again in the manufacturing of motor vehicles.

Meanwhile, the second PPI for manufacturing of goods for final consumption will include goods that are destined for final consumption and include food items.

"This PPI for final goods will therefore track the CPI much closer since the items in the basket will be more similar than the current situation," said Manuel.

"For example, an increase in fuel prices will be reflected in both the manufacturing price index as well as in the agriculture price changes. The idea is to modernise the system so that price changes are tracked and reflected more accurately at the farm or factory gate."