Dear Editor,
The fact that so much media space, time and resources are devoted to inflation speak in one voice, which is that most Guyanese wage a daily battle to put food on the table. Their desperate struggle should not be decried or dismissed. Those who have more than enough on their table and bank account wage another kind of battle: over reported data and time periods and to demonstrate their intellectual prowess.
The Consumer Price Index (CPI) measures the monthly change in prices paid by Guyanese consumers. It is calculated as a weighted average of prices for a basket of goods and services representative of aggregate Guyanese consumer spending – or that’s the way it should be calculated. Note that the CPI, and thus inflation, is computed for Georgetown only. Hence, nothing can be said about inflation in other part of the country, whether it is higher, lower or the same as GT.
The matter before us is plain and simple: official data shows inflation rose by 1.6 percent from January to June 2024. Absolutely nothing is wrong with that statement. Similarly, nothing is wrong with comparing inflation in the first half of 2024 to the first half of 2023. One may want to do the comparison to ascertain if inflation was different in these two periods. Joel Bhagwandin (JB, SN, September 5) did the comparison but went astray. Apparently, displeased that GHK Lall (GK, SN, September 3) questioned the low inflation rate, JB points out the latter’s “error:” “… an increase by 1.6% as of June 2024, when compared to the end of year 2023. However, the corresponding period ought to have been half year 2023 with the corresponding half year of 2024.”
While there is no need to compare these two periods, there is also no harm in doing the comparison. From what I have seen, the BoG was not interested, but JB is, probably because he wanted to demonstrate that inflation declined considerably. Alas, he went astray. The table in his letter does not show inflation in the first half of 2023. Instead, it shows inflation for the year from June 2023 to June 2024. At 4 percent, inflation was higher during that time compared to the 1.6 percent from January to June 2024. A little research and arithmetic reveal that inflation in the first half of 2023 was negative 0.3 percent, which, if believable, was a period of deflation. The downward drift of prices was reversed and rose by 1.6 percent in first half of 2024. Clearly, the cost of living in first half of 2024 was higher than the first half of 2023.
To reiterate, JB’s “corresponding period” is invalid: you cannot compare two time periods of different durations. Further, JB achieved exactly the opposite of what he wanted to demonstrate: inflation in the first half of 2023 was higher than the first half of 2024. When he himself is confused, there is no reason to find fault with Lall’s letter: “… the supposedly CFA trained financial analyst interpretation of the index was fundamentally flawed and incorrect.” Lall’s only “mistake” is not to acknowledge that the PPP is the inflation Gini. Even for the “small man” who hardly knows the meaning of financial analysis, there no need for a “technical article” to explain to him why his “lil money” disappears so quickly. Like small farmers, these “lil” people are the most practical and rational economists on the planet.
There are two other points I wish to make. The first, already alluded to, concerns the relative weight of the 9 groups of items in the CPI basket. It seems to me that Guyanese mostly complain about the cost of food, housing and transportation and not so much about the rest of grouped items in the consumer basket. Food prices went up by 8 percent, miscellaneous goods and services by 1.75 percent, and medical care and health services by 1.57 percent. Prices of five of the remaining six groups of items rose by less than 1 percent, while that of education, recreation and cultural service crept up by 0.16 percent. How much does each group contribute to the disappearance of the small man’s budget?
Now the CPI is not simply the sum of the changes (increase or decrease) of these 9 groups of items. Instead, each group has a weight that expresses its relative importance in the consumer basket. For example, if food accounts for 20 percent of the cost of the consumer basket in a month, the relative importance of this group is 0.20; food “eats” up a fifth of the consumer’s monthly expenditure and, therefore, a fifth of the change in inflation is attributable to food.
For fun, assume each group of items in the CPI basket is weighted equally. That is, each group has a weight of 0.111 (100/9), which means that each group explains about 11 percent of whatever the rate of the inflation number is. Equal weight means equal contribution so that one can simply sum the changes (increase or decrease) all groups and divide the total by 9 to obtain what each group contributes to inflation. Inflation rose by 1.6 percent in the first half of 2023 and, therefore, each of the 9 groups contributes 0.178 percent (0.178*9 = 1.6). Since food prices went up by 8.0 percent and inflation is only 1.6 percent, this suggests that the weight of the food group is smaller than 0.111. I do not know if the relative size of this weight is credible or not. Does the typical consumer spend about 11 percent of her monthly budget on food? The point about this thought experiment is this: if food is weighted higher than 0.111, inflation should be higher than 1.6 percent.
The second point relates to “deliberate government intervention and public policies” to contain prices. Liberalization of the telecommunication industry, the removal of “VAT on data and other electronic supplies for mobile devices, “ and “subsidized fuel cost” mostly affect only 1 of the 9 groups of items in the CPI basket (Transportation and Communications). But how much influence (weight) does this group exert on the CPI? We do not know. Rather than speculating, it would be useful – a public service – for Bureau of Statistics (BoS), the Bank of Guyana or JB to let us know the weight (relative importance) of each of the 9 groups in the CPI basket.
Ultimately, it is an empirical question as to whether government policies and largess or bad data are responsible for the tepid increase in inflation. We can guess, hold beliefs, have views and opinions but these are not empirical evidence. Since the government is apparently working hard to keep inflation down, it should invest some money to study the quality of the data and how much of an impact its actions are having on inflation. The study should also answer the question of whether public resources are allocated to areas that make the biggest impact on the lives of people. For example, should more resources be directly at food than transportation and communication?
Let’s summarize the main issues raised in this letter: (1) the CPI is computed for Georgetown only; (2) it is difficult to believe inflation was only 1.6 percent from January to June 2024; (3) given questionable credibility of the data, it is important know the weight (relative importance) of each of the nine groups of items in the consumer basket; (4) it seems that the fight against inflation is not directed at root causes but are mere palliatives; they tackle symptoms; (5) it is possible that government policies and largess help to keep inflation down but there is no evidence for this; (6) and (7) JB went astray and demonstrated the opposite of what apparently intended to do; his criticism of Lall is also frivolous.
And so we arrive at a demeaning juncture: the struggle for bread by the small man, and the politicization of bread by politicians and their cronies. One lil bit of advice: Guyanese should ask the BoS where it “shops” for items in its consumer basket and do the same. That should let the inflation Gini out of the bottle.
Yours truly,
Ramesh Gampat
