Ethel Hazelhurst

Critical consumer and producer inflation figures are to get a new look. Statistics SA yesterday announced a number of improvements in the way the data are collected and calculated.

Because the habits of end users are constantly changing, the basket of goods and services, on which consumer and producer indices are based, are routinely updated. The improvements announced yesterday include more frequent updates to ensure the baskets remain in line with rapidly changing realities.

The Reserve Bank’s decision on interest rates is influenced by inflation data, so the accuracy of the data affects every household and business.

Previous changes to the baskets produced dramatic shifts in inflation trends, with significant implications for monetary policy. It is too early in the process to speculate on whether there will be a similar impact after the latest review.

Patrick Kelly, Stats SA’s executive manager of price and employment statistics, said there would be no substantial changes to the structure of the consumer price index (CPI), although there would be some additions.

The changes follow an independent review of CPI that found it was “generally of a good quality”, but which made a number of recommendations.

The components of the CPI are weighted according to the relative value of expenditure on the items. And these figures are derived from the income and expenditure survey (IES) which, traditionally, has been carried out every five years. Stats SA now has a living conditions survey which is conducted in between the IESes, and it will be used to update the CPI weights every three years.

Among the innovations will be a “properly designed rural CPI”. Kelly said this would involve collecting food prices in the rural areas instead of using proxy prices from towns.

The informal sector will also be more comprehensively included. Currently the weights include purchases in the informal sector but the price survey excludes informal outlets.

“The new IES will show which products have significant expenditure in the informal sector,” Kelly said.

More details of the process will be announced in the middle of next year. And the new consumer basket will be in place by January 2013. At the same time, the consumer indices will be rebased to 2012.

The impact of the reweighting and rebasing will be seen when the January 2013 inflation figures are announced the following month.

The time series will be maintained, so the published rates of change will not be altered through the rebasing. However, as the old and new indices will have different weights, they will have to be linked through “splicing and chain linking” – a complex procedure that attempts to smooth the process.

Joe de Beer, the economic statistics deputy director-general, said the producer price index (PPI) was due to be updated following a review in 2009 and the changes would be effected in 2014. There would be no aggregate PPI but five separate PPIs based on the “stages of production” concept, which separates primary industries from those in which “there is further transformation of products”.