Proposed national consumer price index
View(s):In the midst of the hullabaloo over the Geneva Human Rights report and preparation of next month’s budget, a cabinet decision reached on Wednesday, though significant, may not get the attention it deserves.
According to the decision, the cabinet had approved a proposal by Prime Minister Ranil Wickremesinghe, in his capacity as the Minister of National Policies and Economic Affairs, to introduce a National Consumer Price Index. The new index will have 2013 as the base year and effective from 21 November 2015, it would be released on the 21st of each month.
“The Colombo Consumer Price Index is prepared by the Department of Census and Statistics for the calculation of changes in the price level and inflation. Although it depicts the price changes in Colombo municipal area it does not represent the national level changes,” the Premier’s proposal said.
Cost of living, its measurement through the Colombo Consumer Price Index (CCPI) and related issues, has also been a problem in Sri Lankan society particularly in the context of the changes and variations in inflation which is not in line with ground reality, according to workers and those running households.
The debate over the inflation index, real incomes and actual, ground-level price increases in the marketplace has dominated the pages of the print media and the electronic media for decades. However much statistics show inflation coming down or reducing to single digit levels, no one believes this data for the simple reason that prices in the marketplace either don’t come down or don’t simply reflect the data trotted out by the Central Bank and the Census Department.
There have been times when the basket of goods and services used to compute the data have been subject to change to reflect new consumption trends … of which some (changes) have been essential while others have been disputed, particularly over the base year used.
One of the critical areas in which the Central Bank/Census Department has failed to sufficiently inform or guide the public is on the inflation data that comes out every month showing either the increase or decrease in prices. It doesn’t necessarily mean that prices have come down when the COL index is up or down: It merely suggests that the rate of inflation (prices rising or easing) has fallen (if the index dropped to 2 per cent from 3 per cent before) or risen (when going up to 4 per cent from 3 per cent).
In a scenario where prices are falling and the rate of increase is dropping, the cost of goods and services are either at the previous year’s level (depending in which month or year the comparison is made). Generally wages should keep pace with cost of living and inflation trends and one complements the other. For example if prices have not accelerated as expected from the previous year, then the benefit would accrue to the population only if wages have increased proportionately. Otherwise workers are stuck with the same price levels, or slightly higher than last year, and no proportionate increase in wages.
The call for a decent wage and/or a living wage from unions reflect current trends where apart from basic costs – food, clothing, housing, transportation, etc – there are new costs that come into the picture. These new trends confront workers in different ways depending on the sector. For example garment workers working in the free trade zones are faced with increased costs of housing and food, clothing plus medicare and don’t have any excess or disposable income to take home in rural Sri Lanka. Often cutting down on food with one curry instead of two or three or foregoing essential protein (meat or pulses) is a way out for many garment workers to manage costs. Less nutrition means greater heathcare costs on their budget. On the other hand they have to work more hours, with little rest, if they are to earn what unions would describe as a living wage. There are similar examples in other sectors.
Another equation in the cost of living/inflation scenario is changing patterns of consumption based on the quality of life, some of which is ‘forced’ on society like costs for tuition, acquiring a private degree spending enormous sums of money, eating out and in recent times the clamour to own a vehicle (among the middle class).
If one considers the crowds at local fast food outlets – particularly among young couples in motor cycles – buying rice and curry or stringhoppers for the night meal (rather than cooking at home which costs less), is a reflection of the new trends in lifestyles in Sri Lanka. In most cases, eating out (in this manner) is forced on young couples and even small families as both parents are working, the children have to be picked up from tuition class or sports practice, leaving little time for parents/families to prepare a proper dinner. Another growing trend is that many office workers pick up lunch from wayside boutiques or the ‘Dimo Batta’ lorry unlike many years ago when lunch was brought from home which may not be possible today due to the trend of working couples and transportation being a nightmare.
Often, eating out leads to medical problems as per consuming the right food, properly cooked and triggering problems like diabetes, cholesterol and other ailments.
While the Prime Minister’s proposal is a good one which would show cost of living in a national context, it is also important that the policy makers get their act right in the formulation of this index. This is particularly in the context that prices in the regions are much less than in Colombo and urban cities and most families in the village including those whose members work in the city eat off the land (vegetables and fruits from home gardens). Such disparities should not be taken out of context to prove that wage levels are sufficient (based on lower costs in the village).
Some years ago the Business Times was considering an index that would track regional variations in the costs of salaried employees and other workers. What was suggested at the time was to assess the expenditure and revenue of different categories of persons – government official, private sector employee, businessperson or daily wage worker – after preparing a basket of goods and track their monthly spending and earning trends.
What was going to be interesting was to understand the changes and variations in consumption patterns – is tuition a new cost, etc – and compare this with the city-based index computed by Government agencies.
Thus while commending the new proposal for a national index, it would be useful if the authorities consider a region-by-region index (if already not done) to understand spending and earning patterns and changes in the quality of life of a cross section of Sri Lankans.