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Marginal Changes in December Inflation Numbers

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
17 Feb 2018 11:00
Marginal Changes in December Inflation Numbers
The average annual rate of inflation for the twelve months to December 2017 (that is comparing the average CPI for the 12 months to December 2017 with the average for the twelve months to December 2016) stands at 3.3 percent.

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.

Consumer Price Index is a comprehensive measure used to estimate the change in the prices of a basket of goods and services representing consumption expenditure of an economy.

The percentage change in this index over a period of time gives the rate of inflation over that specific period.

Inflation measures how much more expensive a basket of goods and services has become over a given period or in other words indicates the increase in the cost of living in a country.

To measure the average consumer’s cost of living, a survey is conducted on the households to identify a basket of commonly purchased goods and services and then track the cost of purchasing this basket over time.

The CPI basket is mostly kept constant over time for consistency, but is adjusted occasionally to reflect changing consumption patterns.

The opposite of inflation is deflation. A general decline in the price of goods and services is known as deflation.

Deflation is different from disinflation as the latter implies decrease in the level of inflation while deflation implies negative inflation.

In the latest release by the Fiji Bureau of Statistics, marginal changes were noted in the Consumer Price Index for the month of December.

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 12 months.

In that regard, the average annual rate of inflation for the 12 months to December 2017 (that is comparing the average CPI for the 12 months to December 2017 with the average for the 12 months to December 2016) stands at 3.3 per cent.

Details of price changes between November and December 2017 by expenditure class are as follows:

  • Food and non-alcoholic

Beverages: increased by 0.8 per cent

Higher prices were recorded for fish and sea food, vegetables, food products n.e.c. and non-alcoholic beverages such as coffee, tea & cocoa and mineral water, soft drinks & fruit juices.

 

  • Alcoholic beverages,

tobacco and narcotics: increased by 1.1per cent:

Higher prices were recorded for spirits, beer, tobacco and yaqona.

  • Clothing and footwear:

reduced by 0.3 per cent:

Lower prices were recorded for garments and shoes and other footwear.

 

  • Furnishings, household equipment and routine household maintenance: declined by 0.9 per cent:

Lower prices were recorded for furniture and furnishings, major household appliances, major tools & equipment and non-durable household goods.

 

  • Health: increased by 0.5 per cent:

Higher prices were recorded for pharmaceutical products.

 

  • Transport: reduced by 0.1 per cent:

Lower prices were recorded for spare parts and accessories and fuels and lubricants.

 

  • Restaurants and Hotels:

increased by 0.3 per cent:

Higher prices were recorded for restaurant meals

 

  • Miscellaneous goods and services: reduced by 0.1 per cent:

Lower prices were recorded for other appliances, articles and products for personal care and jewellery, clocks and watches

 

  • Recreation and culture:

Division recorded some price changes but the changes balanced out.

No price changes were recorded in the following divisions:.

  • Housing, water, electricity, gas and other fuel
  • Communication
  • Education

 

Inflation has many repercussions on the ultimate pockets of individuals as well as at a macroeconomic level and perhaps the reason why the CPI data is one of the highly sought data for market participants.

Inflation affects the buying power of your income, if your income doesn’t increase or increases at a slower rate than general inflation.

It makes your borrowing cheaper if you have an existing loan facility at a fixed rate but not a good news for those on adjustable rate loans.

It makes long term savings less attractive and affects your retirement plan as your savings will buy less as time goes on.

Inflation has a negative effect on the balance of payment by dampening our export sales as other countries find our goods more expensive.

Also, with inflation rising and real wages remaining low, the standard of living is also likely to take a hit.

Our central bank aims to maintain price stability and so to avoid situations of severe deflation/inflation as one of the twin objectives of Reserve Bank’s conduct of monetary policy.

If the economy is overheated, the central bank can implement contractionary policies that rein in aggregate demand.

This is usually done by raising benchmark interest rates.

However, if inflation is driven by global rather than domestic developments, such policy changes may not help.

CPI alone cannot be used as a measure of the total change in living costs.

The true rate of inflation cannot be observed but we can use the CPI (and similar price indexes) to help us approximate the inflation rate.

In practice many adjustments are made to CPI on account of seasonality, changes in composition of the basket and the likes.

Different versions of CPI are also calculated to cater to real life needs.

Feedback:  maraia.vula@fijisun.com.fj

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