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Finally, economic managers in Pakistan have done something they should have done long before. They have expanded the base of the consumer price index (CPI), also taking into account prices in rural markets.<\/p>\n
The CPI has now become more representative and inclusive. Naturally, the inflation measured through it will now be closer to the realities of the soil. The Pakistan Statistical Office (PBS) has started calculating urban and rural CPI numbers separately. To reach a national average inflation rate, he has started combing the two numbers. This will help policy makers make more informed fiscal and monetary decisions. It will give you a better idea of \u200b\u200bwhether incentives to farmers and public service tariff concessions to the rural population are translating into lower inflation in rural areas of Pakistan. While extending the CPI base, the PBS also changed the base year from 2007-08 to 2015-16.<\/p>\n
Thanks to this overflow of the CPI, August general inflation remained at 10.49 percent. Inflation for July-August reaches 9.44pc. If we use the previous method for August, it would be 11.63pc for August and 10.98pc for July-August. So, the change in the base year means a little salvage for the government.<\/p>\n
\nCalculating urban and rural inflation rates separately will help policymakers understand various socio-economic phenomena <\/p>\n<\/blockquote>\n
Even so, the CPI of 10.49 percent for August and 9.33 percent for July-August show that inflationary pressures remain high. It remains to be seen if the reduction in oil prices from September 1 will decrease these pressures or if the electricity tariff for July, which will be implemented in September, will compensate. Much also depends on the pricing of oil in the future. Regardless of the way international oil prices move, taxes and levies on domestic prices will likely remain the same or may even increase further. Due to extreme fiscal imbalances, we should not expect any substantial relief in domestic oil prices, even if world prices decrease.<\/p>\n
With the new method, the national average of the CPI is reached by combining rural and urban CPI numbers. This average is calculated using new pesos assigned to each of the 12 groups of goods and services in the CPI basket. <\/p>\n
For example, the weight of the transport group is now 5.91pc versus 7.2pc in the past. The weight of the health group has increased from 2.19pc to 2.79pc. The food group continues to be dominant with a weight of 34.58pc, a little lower than 34.83pc in the past. A substantial reduction in the weight of the transport group means that an increase in fuel prices will not move inflation figures as strongly as it would in the past.<\/p>\n
New weights have been assigned taking into account people's spending patterns with respect to goods and services in a particular group of the CPI basket in rural and urban Pakistan. The greater weight assigned to the health component of the basket makes sense since a greater awareness of health has resulted in greater expenditure on health services and medicines in both urban and rural areas.<\/p>\n
The group of homes and public services in the CPI basket now weighs 23.63pc, well below 29.41pc in the past.<\/p>\n
Apparently, this has also been done taking into account that the national average falls since the expense in this account in rural Pakistan is substantially lower than the expenditure in urban areas.<\/p>\n
Critics may question the change in the weight of transport and housing and public services segments that together constitute a third of the CPI basket. You can argue that this has been done to suppress the real impact of the increases in electricity and gas rates. After all, during his year in power, the PTI massively raised oil, electricity and gas prices. <\/p>\n
But PBS officials say they have done this to take into account changes in monthly domestic oil prices and a change in the energy mix. They say that according to the new methodology, they are using the weighted average of different slabs of electricity and gas prices instead of using the simple average.<\/p>\n
Calculating urban and rural inflation separately is of particular importance. Before the end of the PTI period in 2023, we will have numerous data sets of urban and rural inflation from month to month and year to year. That will be useful for understanding various socio-economic phenomena, including the pace of urbanization, the movement of labor and capital, the effects of digitalization on banking and business services, education, the gender gap, financial inclusion and the rest. That will help the government to offer more specific and personalized concessions and will allow the central bank to reevaluate the process for the transmission of monetary signals.<\/p>\n
Taking into account rural inflation, the SBP may find additional reasons to drive banks towards greater loans in agriculture and rural SMEs and encourage them to promote savings.<\/p>\n
In addition, it will help policymakers to examine how different and how often the wholesale price index affects the general price line in rural and urban areas. Similarly, the study of the correlation between general inflation and inflation for the poor (measured through the sensitive price index) will be more comprehensive and will help policy makers to improve social safety nets. <\/p>\n
Published in Dawn, The Business and Finance Weekly, September 9, 2019<\/em><\/p>\n<\/p><\/div>\n<\/pre>\n<\/pre>\n
Source: https:\/\/www.dawn.com\/news\/1504234\/inflation-remains-high-reading-methods-change<\/p>","protected":false},"excerpt":{"rendered":"
Finally, economic managers in Pakistan have done something they should have done long before. They have expanded the base of the consumer price index (CPI), also taking into account prices in rural markets. The CPI has now become more representative and inclusive. Naturally, the inflation measured through it will now be closer to the realities […]<\/p>\n","protected":false},"author":1,"featured_media":2876,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[11077],"tags":[],"class_list":["post-2875","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-newspaper"],"_links":{"self":[{"href":"https:\/\/umang.pk\/en_us\/wp-json\/wp\/v2\/posts\/2875","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/umang.pk\/en_us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/umang.pk\/en_us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/umang.pk\/en_us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/umang.pk\/en_us\/wp-json\/wp\/v2\/comments?post=2875"}],"version-history":[{"count":0,"href":"https:\/\/umang.pk\/en_us\/wp-json\/wp\/v2\/posts\/2875\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/umang.pk\/en_us\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/umang.pk\/en_us\/wp-json\/wp\/v2\/media?parent=2875"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/umang.pk\/en_us\/wp-json\/wp\/v2\/categories?post=2875"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/umang.pk\/en_us\/wp-json\/wp\/v2\/tags?post=2875"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}