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Changes Recorded In June Price Index

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 Financial Markets Analyst at
29 Jul 2017 11:00
Changes Recorded In June Price Index

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 Financial Markets Analyst at the HFC Bank, Shoran Devi.

 

Inflation is a sustained increase in the cost of living or the general price level and is measured by the annual percentage change in consumer prices.

Inflation leads to a fall in the purchasing power of money.

The opposite of inflation is deflation where prices are falling. There are some countries that have experienced deflation in the recent past such as Japan and parts of Europe.

Deflation is not necessarily desirable as it means the value of other assets are not appreciating.

Hyperinflation is the term given to countries that have very high inflation such as in countries like Venezuela, Zimbabwe, and countries that have experience civil wars. Inflation in these countries run above 100 percent and in some instance over 1000 percent.

In Fiji, Consumer Price Index is compiled and released every month by Fiji Bureau of Statistics.

CPI measures the average change over time in the prices of consumer goods and services purchased by households 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.

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 June 2017 (i.e. comparing the average CPI for the 12 months to June 2017 with the average for the 12 months to June 2016) stands at 4.7.

Year-on-year inflation, or CPI of June 2017 compared with June 2016 declined further to 2.0% from 2.5% in May and 5.3% in June 2016.

This lower inflation was underpinned by significantly lower prices of food, clothing & footwear, health and miscellaneous items.

The All Items CPI for the month of June registered a decrease of 0.3 percent over May 2017 (116.1) and stands at 115.7.

 

Details of price changes between May and June 2017 by expenditure classes are as follows:

 

Food and non-alcoholic beverages: reduced by 1.8%

Lower prices were recorded for fish and sea food, fruits, vegetables, food products and non-alcoholic beverages such as coffee, tea, cocoa and mineral water.

 

Alcoholic beverages, tobacco and narcotics: increased by 1.3%

Higher prices were recorded for spirits, tobacco and yaqona.

 

Clothing and footwear: reduced by 0.4%

Lower prices were recorded for garments and footwear.

 

Housing, water, electricity, gas and other fuel: 0.0%

There were some price changes recorded in this division but these changes balanced out.

 

Furnishings, household equipment and routine household maintenance: reduced by 0.6%

Lower prices were recorded for major household appliances, small electric household appliances, glassware, tableware and household utensils, small tools and miscellaneous accessories and non-durable household goods.

 

Health: reduced by 0.4%

Lower prices were recorded for pharmaceutical products and other medical products.

 

Transport: remained unchanged.

There were price changes recorded in this division but these changes balanced out.

 

Recreation and culture: increased by 0.1%

Higher prices were recorded for equipment for reception, recording and reproduction, photographic and cinematographic equipment, recording media and games, toys and hobbies.

 

Restaurants and Hotels: increased by 0.2%

Higher prices were recorded for restaurant meals.

 

Miscellaneous goods and services: reduced by 0.2%

Lower prices were recorded for appliances, articles and products for personal care, jewellery and other personal effects.

 

No price changes were recorded in the Communication and Education division.

 

Consumer price index statistics are important indicators of how the economy is performing.

They are referred to for many reasons by individuals, government, businesses and academics.

Inflation statistics has an impact on everyone in some way as they affect interest rates, tax allowances, benefits, pensions, savings rates and many other payments.

However, fall in the rate of inflation is not the same as a fall in prices! The cost of living index is a measure of changes in the average cost of buying a basket of goods and services for a typical household.

Prices of different products rise at different rates.

Consumers tend to change their preference away from the more expensive products to substitute cheaper products.

Because the CPI uses a fixed basket of goods, it will assume consumers are still buying the same amount of the relatively expensive products.

In reality, however, they are buying less of the expensive products. So the overall expenses are not as large as the CPI would suggest.

Also, CPI have difficulty measuring changes in quality of products. Consumers value higher quality products.

When calculating inflation rate using CPI, the implicit assumption is that the quality of fixed basket of goods does not change.

A product could be more expensive because it has improved in quality but CPI would attribute the price rise to inflation.

Therefore, the CPI (often referred to as headline inflation) alone cannot be used as a measure of the total change in living costs.

RBF compiles an underlying measure of inflation called trimmed mean.

Under this measure, the impact of temporary price changes are excluded from headline inflation to determine the actual trend.

Trimmed mean inflation over the past decade averaged around 2 percent.

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