What is Consumer Price Index?

It is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy.

Consumer Price Index (CPI) is the most well-known indicator of inflation and is perhaps not an uncommon subject when it comes to economic fundamentals.

If the CPI is rising, the economy is going through a phase of inflation while the economic situation where the CPI value falls below zero is called deflation.

Effects of Inflation

The effects of inflation are both gradual and profound. Inflation creeps up on us over time, and as we continue our normal spending and consumption cycle, the almost imperceptible increase of consumer prices does not seem to make a huge difference in our daily expenses.

This means it is all too often vastly underestimated.

However, the implications of inflation are generally huge.

It affects our salaries and our ability to purchase every day items, food prices go up, transportation prices increase, and gas prices rise, while the cost of various other goods and services shoot up over time.

Inflationary problems arise when we experience unexpected inflation which is not adequately matched by a rise in people’s incomes.

If incomes do not increase along with the prices of goods, everyone’s purchasing power has been effectively reduced, which can in turn have a spill-over effect on the general economy.

In the latest release by the Fiji Bureau of Statistics, the average annual rate of inflation for the 12 months to January 2019 [i.e. comparing the average CPI for the 12 months from February 2018 – January 2019; with the average for the 12 months from February 2017 – January 2018] stands at 4.4 per cent while the month- on- month inflation rate [compared with January 2018] stands at 5.1 per cent.

The All Items CPI for the month of January registered an increase of 1.2 per cent over December 2018 [122.6] and stands at 124.1.

Details of price changes between December 2018 and January 2019 by expenditure class are as follows:

• Food And Non-Alcoholic Beverages increased by 4.5 per cent.

Higher prices were recorded for meat, fish and seafood, fruits, vegetables, confectionery, food products n.e.c. and non-alcoholic beverages such as mineral water.

• Alcoholic Beverages, Tobacco and Narcotics was up by 1.4 per cent.

Higher prices were recorded for spirits, wine, cigarettes and yaqona.

• Clothing and Footwear increased by 0.2 per cent.

Higher prices were recorded for garments and footwear.

• Housing, water, electricity, gas and other fuels decreased by 0.8per cent.

Lower prices were recorded for gas and kerosene.

• Furnishings, household equipment and routine household maintenance was down by 0.2 per cent.

Lower prices were recorded for small electric household appliance, small tools and miscellaneous accessories and non-durable household goods.

• Transport decreased by 1.2 per cent.

Lower prices were recorded for fuels and lubricants for personal transport equipment.

• Recreation and Culture increased by 0.1 per cent.

Higher prices were recorded for equipment for the reception, record and reproduction of sound & picture and equipment for sport, camping and open air recreation.

• Restaurants and Hotels dropped by 0.6 per cent.

Lower prices were recorded for accommodation services.

Other divisions where some price changes were recorded but the changes balanced out included health, communication and miscellaneous goods and services.

While no price change was recorded in Education division.

Regardless of our understanding of economics, we feel the consequence of inflation every time we head to that cash out counter or receive that pay check.

Inflation is simply the increase in price of goods and services or the decline in purchasing power of our income.

When prices go up, the amount which can be bought with a fixed amount of money goes down; when prices fall, the amount which can be bought increases.

However, the raw CPI data is prone to be inconclusive on price trends due to its tendency to be distorted higher or lower as a result of seasonal factors such as effect of changing climate conditions, production cycles, and cyclical changeovers at factories, holiday seasons, and sales.

As such, the central banks often refer to seasonally adjusted data, as it excludes the seasonal factors, and provides a more reliable picture of underlying trends.

Feedback: maraia.vula@fijisun.com.fj