National Treasury assess re-weighting of CPI

Since January 2009, the new headline CPI - all urban areas (primary and secondary) has replaced the old CPI - all items for metropolitan areas.

This means that the old inflation indicator, the CPI, which excluded interest on mortgage bonds (CPIX) has now been replaced by the CPI which excludes owners equivalent rent.

“The terms and conditions of the government inflation-linked debt will therefore be amended to reflect the relevant changes,” the National Treasury said in a statement, Friday, 20 March 2009.

Historical data

According to National Treasury, Statistics South Africa will provide historic data of the rebased CPI (with 2008 = 100) from December 2008 backwards.

“The National Treasury will also replace existing index data for calculation purposes with the new rebased data until December 2008, and further with the new rebased and re-weighed CPI from January 2009,” the statement read.

For the calculation of the month-on-month adjustment for inflation purposes, the index number for the (new) CPI - all urban areas for January 2009 over the (old) CPI - all items for metropolitan areas for December 2008 will apply.

According to the National Treasury, the base indices will be calculated in such a way that the capital value of the bonds is the same before and after the indices were rebased.

Current reflection of basket

The new CPI basket can be considered an up-to-date reflection of current prices in South Africa and includes inflation on things such as minibus taxi fares, restaurant and take-away meals, funeral costs, hotel rooms, sports event tickets, DVD players and internet costs.

Some items which have been removed from the CPI basket of goods include caravans and boats, musical instruments, VHS recorders and VHS cassettes.

Last month, CPI Manager at Stats SA Patrick Kelly said the rebasing of the CPI involves the process of resetting the actual indices to a common starting point. The rebasing and reweighting of the basket is done to make the CPI more relevant to South African consumers.

Kelly highlighted that even though the new headline CPI figure only takes into account price changes for goods in urban areas, it is still the most reliable measure of inflation.

The new CPI figure, used by the South African Reserve Bank as a measure of inflation, brings down inflation by just under a percent, which is less than the 2 - 3% economists and the National Treasury predicted.

Article published courtesy of BuaNews