New inflation measure to replace outmoded index

Bangladesh is updating the consumer inflation index with lot many goods and services in count, with 2021-22 as new base year, as price rises have upset indices locally and globally.

Officials say the updated gauge to measure inflation is likely to be launched next fiscal year, beginning in July, as the existing one uses 2006 fiscal as base year and fails to portray real picture of inflation.

The updating with the additional items in basket will result in new weightings for the components of its Consumer Price Index (CPI) basket, people at the national statistics office told the FE Sunday.

"There have been huge changes in the consumption habits over the years, so we need the latest commodity basket to reflect the real picture of the price changes," said a senior official working at the national accounting wing of Bangladesh Bureau of Statistics (BBS).

"The existing basket will be updated and most of the weightings will be also changed because the present structure of people's habits has changed remarkably," he added.

But the official wouldn't say what the impact of the re-basing would be on the headline inflation, which, measured by the BBS, has surpassed government-set target --7.5 per cent (revised for FY 2023) --- for seven straight months to stand at 8.78 per cent in February.

However, the BBS statistician said there would be around 700 commodities in the new basket, up by 66 per cent from the existing 422 commodities.

People in the agency, meantime, said they had already finalised lists of the goods and services, both for urban and rural areas.

They will also organise a technical session for the BBS people today (Monday) at its headquarters in Dhaka.

Many items, including MFS or mobile-phone financial services, were not covered in the 2006 index. "Many more people spend a lot more on mobile telecommunications these days and this will significantly increase the weight of communications in the consumer basket," the statistician noted. Usually, each decade needs to be rebased for the basket for changes in eating habits.

The BBS first rebased the CPI in 1973-74, and it continued until FY 1987. Later it introduced 1985-86 as the base year with new weights, and in 1995-96, the BBS also updated. And the existing yardstick is based on 2005-06.

Currently, the BBS collects price data from 140 (64 from urban, 64 from rural, and 12 from Dhaka City Corporation) main markets across the country to calculate the price indices.

Three price quotes per item are collected from each of the markets. Prices of 151 food items as well as 271 non-food items in urban areas, 133 food items as well as 185 non-food items in rural areas (2005-06) are collected.

In collecting prices, four schedules (Darchak) are used (i) monthly rural retail (ii) monthly urban retail (iii) monthly urban wholesale and (iv) quarterly house rent.

Data are usually collected from select shops in each market or selected units or service providers in case of services.

In constructing price indices, the average price for each item is considered.

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