THE CONSUMER PRICE INDEX – FACT OR FICTION?

The consumer price index – fact or fiction?

The National Statistical Bureau has just published figures for the Consumer Price Index for the year 2006 which makes interesting reading. The index is supposed to measure the changes each month of the “prices” of goods and services on which the average household spends its money. To choose the items to be included in the index the statisticians conducted a survey of a representative sample of households or families all over Seychelles, straddling the year 1999 and 2000. A new survey is being conducted as you read this article.

The most interesting revelation the index made is that, we ended the year with the cost of the so-called representative sample of goods and services used by the average household, rising only by 8% compared to the month of January 2001. If you believe that you’ll believe anything. The staff of the IMF – who have observed how Seychelles has become so expensive over the years, especially since 2000, and they have monitored the black market rates of currency exchanges – have complained that the official consumer price index cannot be a true reflection of the rise in prices. “Underlying inflationary pressures resulting from a rapid liquidity increase have not been reflected in the official price statistics” according to the IMF in the statement it issued at the end of their consultation last year.

According to our statisticians, the average household in Seychelles spends only 2.5% of its total expenditure on fish. And the price of fish, according to the index, dropped by 0.05% in January 2007 compared to the same month last year. If you believe that too, you’ll believe anything. If the figures provided by our statistician is any guide (weather permitting granted), the price of fish will actually drop during February and March, rise in April and May, drop in June but rise again to their highest levels in July, August and September. One may wonder, if fish accounts for so little in the household expenditure, why bother to include it in the index. Even though the price of fish rose by 13% in August 2006 compared to January, the entire index moved by only one point.

The most important items the average household spends its money on according to the index, is included under non-food items. This is a list of items that householders in the survey have listed as among the things they buy regularly. The most important items under this heading are Housing (rent and loans) water, electricity and gas. These account for 14.8% of total household expenditures. During 2006, the index showed, the cost of these items did not change at all. Of course all these items are provided by the government to practically most households. A separate index covering private sector rental houses could give a better appreciation of the cost of living.

Under the heading non-food items, alcoholic beverages account for only 11% of the total expenditure of the average household. This means that a three person household – two adults and one child, earning SR3000 a month would spend SR 300 on alcohol. Together with rent or loans, water, electricity and gas, the two subheadings account for 26% or SR 780 out of SR 3000. The statistics also claim that the cost of these items in 2006 remained constant. Yet, many people are in arrears with their electricity bills; and loans and rent are not being paid. The average household must be spending their money on other things since the last household expenditure survey was undertaken five years ago.

The average household, allocates only 1.3% of its expenditure to health and 1.4% only on education but 6.7% on clothing and footwear; 9% on furniture and household equipment and 5.8% on transport. 0.1% of household expenditure is spent on restaurant and hotels. The amount spent on communication, 4.5% must be an understatement.

But one intriguing item which seems rather bizarre is the amount the average household spends on recreation and culture – as much as 5.5% of total expenditure. Just what kind of culture we buy remains a mystery.