This is the first in a series of articles which aims to provide insight into the mysteries of that much quoted phenomenon, inflation. Currently there are, to my knowledge, three organisations in Zimbabwe which publish inflation figures on a monthly basis. Firstly some definitions.
A household is assumed to be a collection of people who eat together on a regular basis. A basket of goods and services is taken to be a collection of items, both food and non food, which a ``typical" household consumes each month. The term consumption expenditure is used to refer to the $ values of all items consumed by the household each month - this will include all food eaten, even if it has not been purchased, and all non food expenditure including rent, bills, fees, gifts, medical expenses, transport, and so on. The term impute is used to refer to the process of estimating the cost of an item, food or non food, which is not purchased but is consumed and is therefore included in the consumption expenditure calculations - for example a bunch of vegetables from the garden or rent for a house which is actually owned.
The Consumer Council of Zimbabwe (CCZ) collects information each month on prices appropriate for a basket of goods for a lower wage earning household, while Price Waterhouse Coopers (PWC) collects information on prices for a basket of goods for a high income earning household. In both of these cases the definition of the basket has been based on informed opinion and prices apply, as far as I know, to Harare only. The monthly publications from these organisations are available directly from their offices on payment of a set fee.
On the other hand the Central Statistical Office (CSO) collects information on the same day each month in shops and markets throughout the country, based on an extremely well defined basket of goods and services. Collection of prices for some non food items such as school fees, takes place on a quarterly basis. The CSO basket of goods is derived from the results of an intensive Income, Consumption and Expenditure Survey (ICES), which is conducted every 5 years - the core data collected via this survey consists of detailed household diaries of all items consumed by the household over a period of one month. This information is then processed and, by means of general linear models, the ``average basket" of goods and services for the ``average" size household in Zimbabwe is derived. Currently the CSO basket consists of 250 food and non-food items and, using the prices of each item as collected, and predetermined weights, the overall weighted cost of the basket is derived each month.
The construction and pricing of the defined basket lead to what is called the consumer price index (CPI). Currently the CSO basket of goods is based on the results of the 1995-96 ICES, and this basket is taken to have the value 100 for the year 1995. By comparing the cost of the basket today with the cost in 1995 we obtain the CPI. Finally, we use the CPI to calculate the percentage change in the cost of the basket over the period of interest, and it is this percentage change that we call inflation. Thus inflation is a measure of cost increase over a specified period, of a defined basket of items
In the next issue we shall examine the CSO basket more critically and consider more statistics.
Example
Recently published figures state that the annual inflation rate in January 2004, was 623%. This means that the cost of the CSO basket increased by 623% during the period January 2003 to January 2004. In other words, if the basket was valued at $100 000 in January 2003 then, in January 2004, its value was $723 000. Similarly we are told that the monthly inflation for January 2004 was 14% - this means that, if the value of the basket in December 2003 was $100 000 then in January 2004 its value was $114 000. Quarterly inflation can be similarly calculated.
Activity
Hold a class discussion and decide on what items should be placed in your ``basket" - the quantity of each must be included in the definition. Organise the class to collect prices of these items each month - each child should record the prices of a number of items from one shop, with the class covering a variety of shops and markets between them. Calculate the average cost of each item in the basket and the overall cost of the class basket each month and use these figures to extract monthly inflation figures for your basket. Plot your results on a graph for easier observation.
| ----------**----------- |
TEACHER: Can you count up to ten?
PUPIL: Yes teacher, one, two, three, four, five, six, seven, eight,
nine, ten.
TEACHER: Good, now go on from there.
PUPIL: Jack, Queen, King.
| Previous | Next | Home |