It was interesting that BT picked up the arguments about the recently released Consumer Price Index (CPI) which our Economic Planning and Development Department (JPKE) recently released. The CPI is showing signs that it is lower and everybody assumes that with lower CPI, the prices should be lower. But for some prices, it is not. This would make a great Economics A Level or first year undergraduate Economics exam question. I am not trying to answer on behalf of my ex colleagues at JPKE but just trying to bring an understanding what CPI does.
The consumer price index is probably one of the most important releases of economic data. The CPI has a direct effect on nearly every person in the country, and in most countries, it is widely used, probably as an indicator how the political leaders are managing the economy, by trade unions in negotiating their pay, by companies in estimating the business growth etc. Less so in Brunei. Most people brush off the CPI but by better understanding the way the CPI is determined, you can avoid misleading propaganda and focus on the valuable facts in the report.
CPI as everyone knows is a measure of prices of a basket of goods. This by its very nature can be misleading. One, it measures the entire economy thus you can see prices of airline tickets etc is built into it even though you might not fly at all. The CPI is subject to both limitations in application and limitations in measurement. The CPI is not applicable to all population groups. For instance, the one I mentioned earlier, the difference between those who travel frequently and those who do not. Or the difference between those who lives in the kampongs and those who live in towns. Or in the argument brought up by BT, the difference between those who buys milk and those who don't. The CPI cannot measure differences in price levels or living costs between one place and another or between one product and another. Changes in living costs too are not well reflected in CPI.
Because CPI is obtained by sampling, there can be errors too. In statistics, this is called sampling errors and non-sampling errors. Because the CPI measures price changes based on a sample of items, the published indexes differ somewhat from what the results would be if actual records of all retail purchases by everyone in the index population could be used to compile the index. These estimating or sampling errors are limitations on the accuracy of the index, not mistakes in calculating the index. Nonsampling errors are caused by problems of price data collection, logistical lags in conducting surveys, difficulties in defining basic concepts and their operational implementation, and difficulties in handling the problems of quality change etc.
The CPI need revisions as long as there are significant changes in consumer buying habits or shifts in population distribution or demographics. Hence, JPKE's frequent surveys. These all have costs though.
But at the end of the day, JPKE cannot produce a CPI which would satisfy everyone. It is almost unrealistic to expect the majority of people to agree on a way to determine the CPI that eliminates all bias presuming that eveyone understands how CPI are derived.