Updating CPI to measure inflation

There has long been a mismatch between the official figure of inflation and what the consumers actually experience every day as they pay for purchasing goods and services in the market. In fact, the official inflation figure is not reflecting the decline in the public's purchasing power over time. No wonder, economists have been critical of the method the Bangladesh Bureau of Statistics (BBS) has been using so far to calculate the inflation rate.  The reference year for determining Consumer Price Index (CPI) should have been changed earlier to get around the discrepancy.

According to the BBS, between the months of January and February, the inflation rate increased from 8.57 percent to 8.78 per cent. However, independent research bodies that track consumer price trends are of the view that the actual inflation rate should be in the double digit. On this score, a study report by one such research group, 'South Asian Network on Economic Modeling (SANEM)', for instance, has questioned the accuracy of the BBS data used to calculate the consumer price index, as it, the research body holds, does not represent the real consumption patterns, especially of the low-income people.  Even the consumer rights protection body, the 'Consumer Association of Bangladesh (CAB'), has cast doubt on BBS's inflation rate calculation saying it does not reflect the actual price situation.

It is against this backdrop that the BBS has, of late, been thinking of updating the base year to calculate the CPI, which is the weighted average of prices for the goods and services representative of the aggregate consumer spending in Bangladesh. The period, 2021-22, is learnt to be set as the base year for measuring the updated CPI from the next fiscal year. Notably, the BBS currently uses 2005-2006 as the base year for the purpose. As expected, the hypothetical basket of goods and services to be used in the updated CPI is also planned to be expanded by including more goods and services. Because, consumers over the years have changed their consumption patterns by adding new items including internet, Mobile Phone Financial Service (MFS), etc. As a result, the older basket of goods and services that included some 422 items is now going to be increased by 66 per cent with the addition of about 300 more items making a total of 700. It could be further learnt that the BBS has meanwhile finalised the new list of goods and services both in the urban and rural contexts.

Though creating a new basis to measure the rate of inflation in the changed market situation has been long overdue, it is still commendable that the government agency tasked with the job, the BBS, has finally made an effort to this end. No doubt, the CPI has to reflect the current trend in the prices of consumer goods, especially the essential ones as well as of services which have been skyrocketing in recent months. However, the price index for the Gross Domestic Product (GDP) does also measure price changes for consumer goods and services. So, the GDP figures are also prone to changes in step with those of CPI. In that case, while measuring the inflation rate, extreme care and, of course, honesty will be required in selecting the consumer goods and services that are genuine and the prices of which can be measured using standard procedure. This will be necessary to avoid any false notion about the inflation rate or GDP.