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Inflation And Consumer Price Index

The consumer Price Index (CPI) is an economic indicator that measures the movement in prices of a basket of consumer goods and services, such as a health, transportation, food and
22 Oct 2016 11:04
Inflation And Consumer Price Index

The consumer Price Index (CPI) is an economic indicator that measures the movement in prices of a basket of consumer goods and services, such as a health, transportation, food and drinks.

The CPI index is calculated by taking the actual prices of goods and services and multiplying it with the weights of the goods and services of each item. 

The basket of goods and services is based on a survey undertaken by the Fiji Bureau of Statistics on what a “normal” or average family consumes in the country. 

This basket is reviewed periodically, normally five years.  For example, spending on mobile phones or internet was not in the CPI basket in the 1970s or 1980’s but now it’s in our basket.

The change in the index is what we normally say is the inflation rate.  That is, the CPI measures the cost of goods we consume which is different from the cost of production or GDP deflator. 

In other words, changes in the CPI are used to assess price changes associated with the cost of living.

The CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.

Fiji has its own unique predetermined basket of goods which estimates what average Fiji households’ purchase nationwide with monthly price collections carried out in the urban areas [Suva, Lami, Nasinu, Nausori, Lautoka, Nadi, Ba and Labasa].

The index is currently taken to represent price changes in the rural areas as well. The CPI weights are derived from the Household Income and Expenditure Survey [HIES] of 2008/2009.

There are two measures of inflation used in Fiji.

One compares the average CPI over the past twelve months with the average CPI over the previous twelve months while the other compares the CPI in the current month with the CPI in the comparable month of the previous year The average annual rate of inflation for the twelve months to September 2016 [i.e. comparing the average CPI for the 12 months to September 2016 with the average for the 12 months to September 2015] stands at 3.2 per cent.

The month – on-comparable – month inflation rate [compared with September 2015] stands at 5.6 per cent.

The All Items CPI for the month of September registered an increase of 0.1 percent over August 2016 [114.4] and stands at 114.5. This means that prices of goods and services rose on average by 0.1 percent over the month.

 

Conclusion

The All Items CPI for the month of September registered an increase of 0.1 percent over August 2016 which stood at 114.4. The annual inflation rate was 5.6 percent at the end of September and has been above 5 percent for the fifth consecutive month.

 

The high inflation rate has been

due two predominant factors:

  • Increase yaqona prices: Yaqona price holds 2% of the Consumer Price Index basket. Due to Cyclone Winston there was a major reduction in supply of yaqona which could not equal its high demand from the public resulting in a price hike.
  • Increase alcohol and cigarette prices: Tax increase announced in the 2016/2017 national budget along with tariff increase and tax increase which led to an increase in unit cost of production ultimately borne mostly by the consumers due to its inelasticity.

Higher inflation means that the value of your money erodes as the same $1 will now buy you less goods and services. High inflation also erodes a country’s competitive.


This is an informative publication, sponsored by The Fiji Sun, Fiji Bureau of Statistics and HFC Bank. All views expressed or implied are purely of the Treasurer at the HFC Bank, Peter Fuata.



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