The Cost-of-Living index is not the same as the Consumer Price Index

Feb 22, 2024 Letters

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Dear Editor,

The Bureau of Statistics has taken note of a letter published in the February 18, 2024, edition of Stabroek News titled “Cost of living Index Data is missing or unreliable” written by Ganga Persad Ramdas, PhD, MA, MS.

The letter claims that the Consumer Price Index official data is “missing or unreliable”, which is wholly inaccurate.

The Consumer Price Index (CPI) is prepared monthly, and it is the weighted average prices of a fixed basket of goods and services consumed by the average Guyanese household, from one period to another. The CPI is used to calculate inflation, which is the change in average prices, in other words the percentage change in the CPI. As the agency responsible for compiling the monthly Consumer Price Index (CPI), the Bureau of Statistics takes this opportunity to, firstly, point out that the CPI is regularly prepared and published on the Bureau’s website and, secondly, inform the public about the soundness of the methodology used to compile the index.

The Bureau of Statistics’ measurement of the CPI follows a rigorous approach that is in conformity with the recommended International Standard used by agencies such as the United Nations Statistics Division (UNSD), International Monetary Fund (IMF), World Bank, Eurostat, and International Labour Organisation (ILO).

This approach starts with a Household Budget Survey (HBS) that collects detailed information on household expenditures that is used to compile the CPI basket of goods and services with those items that account for most household expenditures. The Bureau then uses this CPI Basket to collect prices on a meticulous and systematic basis.

In deriving the Consumer Price Index, the share of each good and service relative to the total household expenditure is used to“weight” the items in the basket. These weights help to ensure that price changes for individual items do not sway overall CPI more than their importance to the expenditures of the household.

To explain the importance of attaching weights to items in the CPI basket, an example may be helpful. Salt is widely used as a condiment, but it consumes a very small portion of household expenditures. Hence, a hypothetical 100 percent increase in salt prices, when other prices are unchanged, would not significantly impact overall prices or household purchasing power even though salt itself may be significantly more expensive. Hence, to avoid bias in the overall price level, salt price, as with every other item, is adjusted by its weight in the CPI.

It should be noted that there are over 200 items in the current basket of goods and services in the following categories: Food, Clothing, Footwear and Repairs, Housing, Furniture, Transport & Communication, Medical Care and Health Services, Education, Recreation & Cultural Services, Miscellaneous Goods & Services.

For clarity, the full year inflation for Guyana in 2023, that is the overall change in prices from December 2022 to December 2023, was 2.0 percent, not the various figures mentioned in the letter. Note that, among the categories of items in the CPI basket, Food items had the highest overall inflation at 3.8 percent while the Clothing category registered deflation (a decline in average prices) by 0.1 percent. The overall CPI and inflation rate therefore accounts for price movements across all categories of goods and services.

Additionally, while the headline of the letter suggests that CPI is the Cost-of-Living Index, these are in fact two related but different measures. The Cost-of-Living Index measures changes over time in the amount that consumers would need to spend to meet a certain standard of living, while, as explained, CPI is the weighted average prices faced by consumers.

The letter also refers to the Gross Domestic Product (GDP) and Gross National Income (GNI). In this regard, the Bureau regularly compiles and publishes both the real and nominal GDP for Guyana, which are available on the Bureau’s website. However, GNI requires adjustments to GDP to account for income earned by Guyanese assets abroad as well as income earned by foreign owned assets resident in Guyana’s economy. These transactions are recorded as inflows and outflows in the Balance of Payment, which is compiled and reported by the Bank of Guyana.

In closing, it is acknowledged that it is natural for people to notice prominent or outstanding developments and trends, such as marked price increases. However, the Bureau of Statistics must objectively capture, measure, and report on overall developments. This ensures that the data and information produced by the Bureau is unbiased and meets required standards of statistical confidence. In this regard, the Bureau will continue to employ best practices, appropriate methods, and international definitions and standards as we work to enhance the quality and range of our statistical products.

Sincerely,

Errol La Cruez,

Chief Statistician

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• Chief Statistician, Consumer Price Index, Errol La Cruez, inaccurate, Stabroek News

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