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Consume Price Index & Inflation Rate in Pakistan
 

Consume Price Index & Inflation Rate in Pakistan

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The Presentation is about how Consumer Price Index (CPI) is calculated & formulated in Pakistan. The three formulas being used in Pakistan CPI, SPI & WPI are being used to calculate the Inflation ...

The Presentation is about how Consumer Price Index (CPI) is calculated & formulated in Pakistan. The three formulas being used in Pakistan CPI, SPI & WPI are being used to calculate the Inflation Rate.

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  • Conclusion: Inflation is one of the obstacles on the way of development. In Pakistan, it has squeezed the major part of the population. It needs to be controlled by strategic planning. Domestic production should be encouraged instead of imports; investment should be given preference in consumer goods instead of luxuries, Agriculture sector should be given subsidies, foreign investment should be attracted, and developed countries should be requested for financial and managerial assistance. And lastly a strong monitoring system should be established on different levels in order to have a sound evaluation of the process at every stage.

Consume Price Index & Inflation Rate in Pakistan Consume Price Index & Inflation Rate in Pakistan Presentation Transcript

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  • Consumer Price Index Presenters Hafiz Islam CEP-FALL10-005 Faisal Basra E/M SPR10 – 060 Haris Jameel E/M FALL10-006
  • PRICE STATISTICS
    • Price statistics includes collection of retail and whole sale prices and computation of following indices:-
    • 1. Consumer price index (C.P.I)
    • 2. Wholesale price index (W.P.I)
    • 3. Sensitive price indicator (S.P.I)
    • “ Consumer Price Index is the main measure of price changes at the retail level. It measures changes in the cost of buying a representative fixed basket of goods and services and is generally accepted as a measure of inflation in the country”.
    Consumer Price Index
  • SENSITIVE PRICE INDICATOR (SPI)
    • Sensitive Price Indicator (SPI) is designed to assess price movement of essential consumer items at short intervals (on weekly basis ).
  • WHOLE SALE PRICE INDEX (WPI)   Wholesale price index ( WPI) is designed to measure the change of price in the primary and wholesale markets.  
  • Why Three Types of Indices?
    • CPI measures Inflation rate in the country
    • SP I is computed to assess the price movement of essential commodities at short interval of time to review the price situation in the country.
    • WPI measures the General Price level in the whole sale market.
  • The CPI is the most widely used measure of inflation and is sometimes viewed as an indicator of the effectiveness of government economic policy. It provides information about price changes in the Nation's economy to government, business, labor, and private citizens and is used by them as a guide to making economic decisions. In addition, the President, Congress, and the Federal Reserve Board use trends in the CPI to aid in formulating fiscal and monetary policies. Function of CPI
  • WHAT CPI MEASURES?
    • It measures Price changes of fixed market basket of goods and services of constant quality and quantity.
    • It tells how much cost of living has risen or fallen due to price changes irrespective of changes in consumer behaviour or quality of goods.
    • It does not reflect the cost of living or in house hold consumption expenditure as such but only the influence of price fluctuation on the trend.
  • The Consumer price index was computed for the first time with 1948-49 as a base for industrial workers in the cities of Lahore, Karachi and Sialkot only. Continuous efforts have been made, since then, to make CPI more representatives by improving and expanding its scope and coverage in terms of items, category of employees, cities and markets. Accordingly, the CPI series were computed with 1959-60, 1969-70, 1975-76, 1980-81 and 1990-91 as base years. A History of Inflation in Pakistan with reference to CPI
  • Selection of Markets/Outlets and Cities
    • Items are selected on the basis of Family Budget Survey
    • Markets are selected through retail and wholesale trade survey.
    • Outlets are selected on transaction value basis.
    • Cities are selected on population basis
    • Stratified sampling are used for selection of cities.
  • Weights for CPI The results of Family Budget Survey provide the average percentage expenditure(Consumption pattern) of Households on each item/each commodity group and for each income group for the cities covered in CPI. These average percentage expenditures on item and commodity groups are called weights and are being used in computation of the CPI. P o x q o W i = ------------- x 100  P o x q o Example: 1. Total Expenditure: Rs. 3000, 2. Expenditure on Wheat Flour:- Rs. 100 3. % of Expenditure on Wheat flour = (100/3000)*100 = 3.33 Weight of Wheat flour = 3.33%
  • Commodity Groups Wise Items and Weights C.P.I (2000-01)
    • Commodity Group Weights Items
    • 01. Food, Beverages & Tobacco 40.34 124
    • 02. Apparel, Textile & Footwear 6.10 42
    • 03. House Rent 23.43 01
    • 04. Fuel & Lightening 7.29 15
    • 05. House Hold, Furniture & Equipment etc. 3.29 44
    • 06. Transport & Communication 7.32 42
    • 07. Recreation & Entertainment 0.83 16
    • 08. Education 3.45 24
    • 09. Cleaning, Laundry & Personal Appearance 5.88 26
    • 10. Medicines/Medicare 2.07 29
    • TOTAL 100.00 374
    • What goods and services does the CPI cover?
    • The CPI represents all goods and services purchased for consumption by the reference population (U or W) BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups. Major groups and examples of categories in each are as follows:
    • FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
    • HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
    • APPAREL (men's shirts and sweaters, women's dresses, jewelry)
    • TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
    • MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
    • RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
    • EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
    • OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).
  • COVERAGE OF CITIES AND MARKETS IN BASE YEAR FOR CPI 2000-2001 Name of City No of Markets Name of City No of Markets Punjab 1. Islamabad (Federal Capital Area) * 04 10. Jhang 01 2. Rawalpindi * 06 11. Okara 01 3. Lahore * 07 12. D. G. Khan 01 4. Gujranwala * 01 13. Bahawalpur * 01 5. Faisalabad * 02 14. Bahawalnagar 01 6. Multan * 03 15. Mianwali 01 7. Jhelum 01 16. Vehari 01 8. Sialkot * 01 17. Attock 01 9. Sargodha * 01 18. Samundari 01
  • COVERAGE OF CITIES AND MARKETS IN BASE YEAR FOR CPI 2000-2001 Name of City No of Markets Name of City No of Markets Sindh N.W.F.P. 19. Karachi * 13 27. Peshawar * 03 20. Hyderabad * 04 28. Mardan 01 21. Sukkur * 02 29. Abbottabad 01 22. Nawabshah 01 30. D. I. Khan 01 23. Larkana * 01 31. Bannu * 01 24. Mirpurkhas 01 Balochistan 25. Shahdadpur 01 32. Quetta * 02 26. Kunri 01 33. Khuzdar * 01 34. Turbat 01 35. Loralai 01 Total Cities = 35 Total Markets = 71
  • INCOME GROUPS OF CPI
    • Up to Rs. 3000.00
    • Rs. 3001.00 - 5000.00
    • Rs. 5001.00 – 12000.00
    • Above Rs. 12000.00
  • Time table for Collection of Prices Part-I Food, Beverages Tobacco Monthly 11-14 of each month Part-II Apparel, Textile and Foot Wear Fuel and Lighting Monthly 01-03 of each month Part-III House Hold, Furniture & Equipment Transport & Communication Monthly 04-06 of each month Part-IV Recreation, Entertainment & Education, Cleaning, Laundry & Personal Appearance & Medicines Monthly 07-10 of each month Part- VII Whole sale price Monthly 13-15 of each month Part-VI S.P.I Weekly Each Thursday Daily Prices of 18 items Daily Daily
  • FORMULA USED FOR COMPUTATION OF CPI Laspeyre's formula as given below is being used for the computation of CPI.  (Pn/Po) x wi   In = --------------------- x 100    wi   Where In = CPI for the nth period   Pn = price of an item in the in the nth period   Po = price of an item in the base period   wi = weight of the ith item in the base period = Po x qo /  Po x Qo    wi = Total weight of all items.  
  • EXAMPLE FOR COMPUTATION OF CPI  ( P n /P o ) x W i Index = -------------------------------- x 100  W i     1.3246 I = -------------------------- x 100 = 123.41 1.0733   ITEM UNIT BASE PRICE (P o ) PRICE IN MAR, 06 (P n ) WEIGHT (W i ) P n / P o P o / P n x W i Moong Pulse Kg 29.91 47.61 0.2230 1.5918 0.3550 Mash Pulse Kg 45.01 52.72 0.2017 1.1713 0.2363 Masoor Pulse Kg 36.23 44.03 0.2214 1.2153 0.2691 Gram Pulse Kg 28.99 31.50 0.4272 1.0866 0.4642         1.0733   1.3246
  • Inflation Rate Definition In mainstream economics, the word “inflation” refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances.
  • Inflation Rate in % Year Inflation rate (consumer prices) (%) 2000 6 2001 5.2 2002 4 2003 3.9 2004 2.9 2005 4.8 2006 9.1 2007 7.9 2008 7.6 2009 20.3
  • Limitation of CPI
    • Coverage is limited
    • Only covers Urban Centres
    • Prices may have different trend in rural & urban centres.
    • Rent is computed through construction input items index instead of rent survey.
    • It measures partially inflation not total consumer’s expenditure.
  • FUTURE PLANNING
    • Change of base of CPI, WPI & SPI from 2000-2001 to 2006-2007.
    • Rural areas will be covered in CPI.
    • Rent will be computed on rent survey basis.
    • COICOP classification will be used in CPI and CPC in WPI.
    • Enhance scope of indices in terms of cities/items and income groups.
  • Conclusion Inflation is one of the obstacles on the way of development. In Pakistan, it has squeezed the major part of the population. It needs to be controlled by strategic planning. Domestic production should be encouraged instead of imports; investment should be given preference in consumer goods instead of luxuries, Agriculture sector should be given subsidies, foreign investment should be attracted, and developed countries should be requested for financial and managerial assistance. And lastly a strong monitoring system should be established on different levels in order to have a sound evaluation of the process at every stage.
  •