Normally, inflation data is reweighted every five years to factor in changes in consumer behaviour. As the economy grows and wages increase, spending on certain items such as food, electricity and petrol tend to decrease.
This time, however, Statistics South Africa (Stats SA) is releasing the new inflation data six years after the last official basket was released in 2002.
Patrick Kelly, executive manager of CPI at Stats SA, says this is because the inflation basket was overhauled and revised to align it with global inflation data.
This process took much longer, but Kelly says at every stage Stats SA ensured that analysts and the Reserve Bank were informed.
Kelly says “delay” was fully communicated to the market.
By its very nature, inflation data has its shortcomings as a reflection of economic activity because of the complicated nature of collecting pricing information.
No single person’s monthly expenditure is the same and economic conditions influence spending patterns far quicker than the data can be collected. In an ideal world the basket would be updated on a monthly basis — as the United States does with unofficial monthly numbers.
But financial constraints and skills shortages mean South Africa is far from that ideal.
In 2006, when the income and expenditure survey was done, South Africans were already spending significantly less on food and petrol as a total percentage of their expenditure than they did in 2000. But they were spending more on vehicles. Since 2006 food and petrol prices soared, while motor vehicle prices declined.
Had the current weightings been reflective of what South Africans were actually spending, the impact of higher food and petrol prices would have had less of an effect on the inflation basket. This in turn would have had a positive impact on lower car prices.
If food and petrol prices had not risen dramatically in the last few years, this would all be fairly irrelevant.
The timing of the new basket could not be worse. South Africans did not receive the benefit of the basket weightings on the way up and will now be prejudiced on the way down. Food prices are expected to decline and there are hopes that the oil price will start to pull back, as evidenced in the past few weeks.
The positive benefit of these changes will carry less weight in the new basket, while car prices are expected to begin to increase.
Kelly says there will be no delay in the next reweighting to be released in 2014. He says Stats SA aims to reweight the basket every three years.
The request by Investec to release the new number now rather than in January is not possible because Stats SA needs a full year’s price history on the new basket.
There would be no equivalent prices to compare year-on-year until January when Stats SA would have completed a year of pricing the same basket.
Andre Roux from Investec Asset Management argues that Stats SA could still come up with an estimation, just as the many investment houses have already done. He believes that, although not 100% accurate, it would be better than the current situation of overstating inflation numbers.