| |
|
 |
| For business information, annual reports, laws, ordinances, regulations and articles. |
|
|
|
An analysis of the inflation rates for various income groups reveals that the inflationary impact on low-income groups was lower than the 3.6 percent CPI increase; the incidence of inflation on various income groups is shown in Table III.4. The lowest income group experienced an inflation rate of 3.2 percent compared with 5.1 percent for the more affluent. As stated earlier, the main reason for this stems from food items, which takes up a larger fraction of the income earned by the poor.
Table III.4
Inflation by Income Groups
(Percentages)
| Income Groups | FY95 |
FY96 |
FY97 |
FY98 |
FY99 |
FY00 |
| (per month income) | ||||||
| Upto Rs 1,500 | 13.9 |
10.6 |
11.8 |
7.8 |
5.6 |
3.2 |
| Rs 1,501 to Rs 4,000 | 13.3 |
10.7 |
11.9 |
7.8 |
5.6 |
3.4 |
| Rs 4,001 to Rs 7,000 | 12.4 |
10.8 |
11.8 |
7.9 |
5.9 |
3.8 |
| Rs 7,001 to Rs 10,000 | 11.4 |
11.3 |
11.6 |
8.0 |
6.2 |
4.5 |
| Above Rs 10,000 | 10.8 |
11.8 |
11.2 |
7.9 |
6.6 |
5.1 |
| Combined | 13 |
10.8 |
11.8 |
7.8 |
5.7 |
3.6 |
Anatomy of CPI Basket
Given the popular skepticism, a detailed look at the composition of the CPI basket is
useful. This index is based on a basket of 460 consumer items selected on the basis of a
Family Budget Survey conducted by FBS in FY91. Its purpose is to measure the change in
cost of living due to changing prices of consumer items. The CPI basket profile shown in
Table III.5, lists selected items in each group in terms of their weight in the basket.
The weight of an item represents the expenditure share of an average family on that
specific item in its total monthly expenditure. House rent stands out as the most
important item in the basket, with a weight of 18.98. This means that a family with a
total monthly expenditure of Rs 10,000 spends Rs 1,898 (on average) as monthly rent. The
next important item is fresh milk with a weight of 8.16, indicating that this family
spends Rs 816 per month on fresh milk.
The CPI is compiled by FBS on the basis of monthly surveys. Its coverage includes 25
cities (Abbotabad, Chakwal, D.G.Khan, Faisalabad, Gujranwala, Hyderabad, Islamabad,
Jehlum, Karachi, Kasur, Khuzdar, Lahore, Mardan, Mianwali, Multan, Nawabshah, Okara,
Peshawar, Quetta, Rawalpindi, Sargodha, Shorkot, Sialkot, Sukkur, and Tando Muhammad
Khan). Each month, about 113,000 prices are collected on the basis of a stratified random
sample covering 61 markets in these 25 cities. Price quotations are collected for each of
the 460 items from 4 different shops in each market.
Table III.5
CPI Basket for General Income Group
| Groups & Items | Weight |
| 1. Food, Beverages & Tobacco (163) | 49.3507 |
| 1. Milk Fresh | 8.1590 |
| 2. Beef | 2.8698 |
| 3. Sugar Refined | 2.8326 |
| 4. Wheat Flour Sup. Qlty | 2.2426 |
| 5. Vegetable Ghee(Loose) | 2.0502 |
| 6. Wheat Flour Av. Qlty | 1.9223 |
| 7. Wheat Flour Bag | 1.9223 |
| 8. Mutton | 1.7470 |
| 9. Vegetable Ghee | 1.5572 |
| 10. Red Chillies Powder Loose | 0.7678 |
| 11. Wheat | 0.7296 |
| 12. Rice Tota | 0.6458 |
| 13. Rice Irri | 0.6331 |
| 14. Potatoes | 0.6218 |
| 15. Onions | 0.6178 |
| 16. Tomatoes | 0.5882 |
| 17 to 163. (Other 147 Items) | 19.4436 |
| 2. Apparel, Textile & Footwear (69) | 7.5622 |
| 1. Shirting Av. Qlty. | 0.4054 |
| 2. Palace-Crepe Av. Qlty. | 0.3617 |
| 3. K-T | 0.3617 |
| 4. Georgette | 0.3617 |
| 5. Tailoring Awami-Suit | 0.3426 |
| 6. Tailoring Pant | 0.3237 |
| 7. Pant Cloth W & W Av. Qlty. | 0.3149 |
| 8. Long Cloth Av. Qlty. | 0.3104 |
| 9. Linen Av. Qlty. | 0.3104 |
| 10. Girls Slipper Bata | 0.2342 |
| 11. Ladies Sandal Bata | 0.2342 |
| 12 to 69. (Other 58 Items) | 4.0013 |
| 3. House Rent (1) | 18.9813 |
| 1. House Rent Index | |
| 4. Fuel & Lighting (17) | 6.1325 |
| 1. Elect. Charges 51-150 Units | 1.5566 |
| 2. Gas Charges Ist 100 Cum | 0.8324 |
| 3. Firewood Split | 0.8079 |
| 4. Firewood Whole | 0.8078 |
| 5. Kerosen | 0.7105 |
| 6. Elect. Charges Upto 50 Units | 0.5903 |
| 7. Elect. Charges 151-300 Units | 0.1495 |
| 8 to 17. (Other 10 Items) | 0.6775 |
| Groups & Items | Weight |
| 5. Household Furniture & Equipment (53) | 2.0010 |
| 1. Bedsheet Single | 0.2034 |
| 2. Quilt | 0.2012 |
| 3. Blanket | 0.1052 |
| 4. Fan 48" Sup. Qlty. | 0.0831 |
| 5. Fan 48" Av. Qlty. | 0.0831 |
| 6. Pillow Cover | 0.0705 |
| 7. Towel | 0.0672 |
| 8 to 53. (Other 46 Items) | 1.1873 |
| 6. Transport & Communication (43) | 5.0760 |
| 1. Bus Fare Outside City | 0.6108 |
| 2. Petrol Regular | 0.4702 |
| 3. Minibus Fare Minimum | 0.4142 |
| 4. Minibus Fare Maximum | 0.4142 |
| 5. Petrol Super | 0.3572 |
| 6. Bus Fare Minimum | 0.3314 |
| 7 to 43. (Other 37 Items) | 2.4780 |
| 7. Recreation, Entert. & Education (45) | 3.1234 |
| 1. School Fee Primary Urd. Med. | 0.3294 |
| 2. School Fee 2nd-Ry Urd. Med. | 0.3294 |
| 3. Tv. Licence Fee | 0.2314 |
| 4. Ex. Book 80/100 Pages | 0.1965 |
| 5. School Fee Primary Eng. Med. | 0.1350 |
| 6. School Fee 2nd-Ry Eng. Med. | 0.1350 |
| 7 to 45. (Other 39 Items) | 1.7667 |
| 8. Cleaning, Laundry & Personal | |
| Appearance (45) | 5.3974 |
| 1. Washing Soap Nylon | 1.0607 |
| 2. Haircut | 0.6525 |
| 3. Toilet Soap Lifebuoy | 0.6387 |
| 4. Surf | 0.2404 |
| 5. Toilet Soap Lux | 0.2174 |
| 6. Hair-Oil Coconut | 0.1904 |
| 7. Washing Ch. Dhobi | 0.1863 |
| 8 to 45. (Other 38 Items) | 2.2110 |
| 9. Medicines (24) | 2.3730 |
| 1. Doctor Clinic Fee | 0.2976 |
| 2. Paracetamol Tablets | 0.1038 |
| 3. Ponstan Tablets | 0.1038 |
| 4. Actifed Tablets | 0.1038 |
| 5. Surbex-T Tabs. | 0.1038 |
| 6 to 24. (Other 19 Items) | 1.6602 |
| Figures in parentheses are total number of items in the group. |
The CPI is constructed specifically for consumers
belonging to five monthly income groups: (1) up to Rs 1,500, (2) Rs 1,501 to Rs 4,000, (3)
Rs 4,001 to Rs 7,000, (4) Rs 7,001 to Rs 10,000, and (5) Rs 10,001 and above. This
categorization was determined on the basis of income levels prevailing in FY91, which will
be updated by FBS when CPI is revised on the basis of a new Family Budget Survey.
Nevertheless, existing categorization correctly captures the differences in expenditure
shares of consumers belonging to different income classes i.e., it conforms to the
well-established fact that low-income families tend to spend a larger proportion of their
income on food. CPI basket for low-income group has a higher weight assigned to food items
compared with high income groups. Given the low level of documentation of income, the
sense of skepticism concerning official inflation rates is actually a reflection of low
reported incomes.
As touched upon earlier, another reason for the skepticism is that people usually create a
simple average of price increases, whereas a weighted average approach is necessary to
arrive at more realistic estimates. Therefore, casual and subjective estimates are almost
always misleading. For example, if we take only three items; fresh milk, sugar and cloves,
prices increased by 1.7 percent, 10.4 percent and 70.7 percent, respectively in FY00. A
simple average of these price increases will give 27.6 percent, which is a gross
overestimate of the cost of living increase. The reason is quite simple: cloves have a
very small weight in the consumer basket. Following through with this example, weights
assigned to fresh milk, sugar and cloves are 8.16, 2.83 and 0.04, respectively. A weighted
average of these price changes will only show a cost of living increase of 4.2 percent.