More booze in SA’s inflation basket

According to the evolution of the basket of products used to calculate the inflation rate, people seem to like working, drinking gin, listening to music and wearing make-up more than five years ago. They also seem to like their soft clothes and like to make an instant cappuccino – to drink in the dark.

The biggest change made by Statistics South Africa (Stats SA) in updating the Consumer Price Index (CPI) to reflect changing consumer behavior is that the ‘average basket’ contains more alcohol, while people spend less on electricity.

Stats SA added gin to the basket of 415 products as it became very popular, while the weight of alcohol was increased overall.

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Patrick Kelly, chief director of price statistics at Stats SA, pointed out during a presentation of changes to the representative basket on Monday that the weight of alcohol had increased by 0.44%. This is the largest increase of any category.

In effect, it means people are likely to spend more of their disposable income on alcohol – almost half a percent more than in the older basket of 2016.

Lower fuel expenses

In comparison, the share of household expenditure devoted to fuel has only increased by 0.24% since 2016, while the weight of electricity expenditure has decreased by 0.12%.

Additional data provided by Stats SA shows that on average nearly 4.3% of total consumer spending across South Africa is spent on the purchase of alcohol. This excludes alcohol which is included in people’s spending in restaurants.

Eating and drinking in restaurants represents 2.2% of spending by citizens nationwide.

Stats SA says changes to the consumer inflation basket were needed because household spending habits have changed since its last update in 2016.

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“It is recommended that national statistical offices update the basket at least every five years to ensure that it accurately reflects trends in household spending, technology and consumer tastes. The process involves remove items that are no longer relevant and include new items that have attracted a significant share of consumer spending.

Kelly says the CPI basket now contains 415 items, up from 404 in 2016 – 14 items have been added, two have been removed and some products have either been split into two or combined into one.

New products

The basket changes were based on “very detailed” sales data from chain stores, according to the Stats SA presentation.

Products added to cart include dairy/juice mixes, samp, pureed baby food, cappuccino packets, jam, gin, printer paper, ink cartridges, soundbars and speakers, sanitary wipes, razors, foundation, floor and wall. tile and fabric softener.

Energy-saving and traditional light bulbs, previously listed as separate items, have been merged into one product following the virtual disappearance of incandescent bulbs. Corn flour and super corn flour have also been merged into one product.

Internet services have been divided into two distinct products, namely fixed telephony services and wireless Internet.

DVD players and TV antennas (as well as satellite dishes) have been removed from the basket, while the monthly price collection for pre-recorded compact discs will in future include prices for music subscriptions and streaming services to reflect consumer growth the appetite for streaming music services, and the product will be rebranded as such.

Stats SA notes that rewritable CDs and postage stamps were removed from the basket in the previous update in 2016, and VHS recorders and tapes were removed in 2009.

International practices

Stats SA statisticians say there is a need to regularly update the basic basket of goods and services people buy to ensure the CPI and inflation rate remain realistic and reflect the true cost of life in South Africa as people change their consumption habits.

“As the basket and product weighting gets older, it becomes less relevant,” says Kelly. “Taste changes and new products are being introduced, while there’s also a bit of a substitution bias in the sense that people are moving towards products that might have a lower inflation rate.”

Stats SA says international standards require the CPI basket to be updated at least every five years to ensure that the measure of inflation reflects changes in consumer spending habits. The CPI weights and basket were last updated in January 2017.

Lack of funds

Statisticians lament that Stats SA did not have the funds to conduct a large-scale household income and expenditure survey this time around. Due to budget cuts, Stats SA has not received funding to conduct a Household Expenditure Survey since the Living Conditions Survey in 2014/15.

“This is a complex investigation that can take up to 12 months. It is a critical inquiry. It not only provides data on how people spend their money, but [also] provides crucial data on poverty levels,” says Kelly.

Stats SA had to rely on household final consumption expenditure figures as reported in national accounts.

“This is the first time that Stats SA has relied entirely on national accounts data to recalibrate CPI weights. However, the sources and methods used to update the basket and the weights are nonetheless consistent with international good practice,” Stats SA noted in its official report on the new basket.

She notes that a shortcoming of this method is that the national accounts only provide figures for the whole country, whereas a survey produces data for different provinces, for cities and for rural areas, as well as for different income groups.

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“Although national accounts do not provide the same level of product, geographic and demographic detail as a household expenditure survey, they have the advantage of deriving expenditure estimates from a broad array of data sources,” says Stats SA, with Kelly saying this is an acceptable short-term solution, but not a long-term one.

The previous weights, referring to December 2016, have been adjusted with growth rates up to 2019. The latter was selected because it is the most recent period before the Covid-19 induced economic disruptions and for which the national accounts information will not be substantially revised.

Stats SA will update the CPI basket of goods and services, and the corresponding weights, starting with the January 2022 CPI.

There will be no change in collection, processing or compilation methods, which are in line with international best practice, says Stats SA.

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