Dear Editor,
It’s undeniable that governments all over the world have a compelling incentive to underreport inflation. This letter touches on the subject.
Stabroek News (SN) is doing a great public service by providing high-frequency monthly coverage of the cost of living across the country, not just in Georgetown — information that the government (Bureau of Statistics) does not provide for other locations and regions, or in timely manner. My question: “Does the consumer price index (CPI) provided by this Bureau, accurately reflects how the cost of living is affecting people?” The CPI frequently is called a cost-of-living index (COLI), but it’s not, as the COLI would measure changes over time in the amount that consumers need to spend to reach a certain standard of living, or a level of satisfaction or wellbeing.
To illustrate the subtlety of this point, let’s work with this example of a Frugal Family of Four: mother and father, and two children in secondary school; and picture them at the table one evening in May 2023, having dinner, chicken stew (ingredients are a 4-pound chicken, ½ pound of tomatoes, 1 pound of potatoes, and seasonings); and white rice (a 2-kg bag of rice). Bottled water for drink, no dessert. Using SN as my data source, I estimate the items listed cost this family G$4,250. They have chicken stew fairly regularly. Prices keep going up and a year later, May 2024, it now cost G$5,500, a whopping 29 percent increase. Meanwhile, the household has seen only a modest hike in income. Note that for many workers, G$5,500 represents a big chunk of a day’s money earnings.
Since COVID-19 and the Russo-Ukraine conflict, more income in Guyana is being spent on food, and therefore the reported increases in the CPI seems likely to underestimate inflation, given an unchanged, fixed weight for food in the CPI basket. (The CPI assumes fixed weights that need to be frequently revised as spending patterns change). CPI inflation was 2.8 percent in 2023; 3.6 percent in May 2024. Pretty subdued by all appearances. And if you mistakenly equate cost of living with the CPI, you may even say the average household in Guyana isn’t suffering too badly from high and rising cost of living. But is it so?
Keep in mind this key concept of welfare as we revisit the Frugal Family. Given that their money income is falling farther and farther behind food prices, can the household afford to eat chicken as often as before while still enjoying the same standard of living? Possibly. The family might spend less on chicken, other meats being pricier (a pound of mutton is for G$1,800), but spend more on cheaper sea food. But fish and shrimp aren’t a bargain. According to the SN reports, fish (bangamary) — a staple source of protein — is two for G$500, so the Frugal Family of Four needs at least four, and depending on their sizes, maybe eight. In general, given the income constraint in the midst of rising prices, the likely outcome is for households and individuals to tighten their belts, which as far as I can tell is what the SN reports confirm month after month.
So: what are the key takeaways: One, my sense is that the official food price index is lowballing food inflation and, partly as a result of this, the CPI (Georgetown) is also lowballing overall inflation. It is worth noting that out-of-town, village prices tend to be higher and more variable. Two, given the upward trend in the cost of living, the households and individuals on relatively fixed money incomes — without financial help from relatives abroad — are forced to consume less in quantity and quality; hence, a decline in the standard of living.
It would be useful for the Bureau of Statistics to report on its website the weights of the 9 categories in the CPI, how often they are revised for changes in spending patterns, all clearly explained in a CPI methodology. These actions would go a long way to dispel confusion but, more important, promote credibility. Bahamas, Barbados, Jamaica, and Trinidad and Tobago have long followed these best practices.
Sincerely,
Terence M. Yhip
Published author (Finance and Development)