November 2023 inflation numbers took many by surprise, as the impact of changes in piped gas price for domestic consumers was deemed to be significantly higher than what a lot of observers had expected it to be. While the analyst community had underestimated the impact, largely owing to confusion over treatment of fixed charges, the PBS has undoubtedly come up with an inexplicably high number, that warrants a detailed public disclosure at the least, if not an immediate correction.
Putting things in context, the PBS tabulated 280 percent increase in consumer end gas price month-on-month, for all five consumption quintiles combined. What needs to be considered here is that the pricing slabs for natural gas have been considerably altered since the PBS last revised and made public its methodology of gas price change. The tariffs are now divided into protected and unprotected categories, introduced with effect from January 2023.
What this obviously does is that it muddles the entire methodology and keeps researchers guessing on how exactly the PBS is now treating the altered consumption slabs in its computation. For simplicity’s sake, by the Ministry’s own admission, the protected consumer category comprises of 57 percent of all consumers – which covers the top three quintiles.
The weekly SPI reading shows the PBS has calculated the gas price increase for the lowest quintile at 480 percent. It is fair to assume the bottom quintile consists entirely of the protected consumer category, where the highest increase at any consumption point is 211 percent, and it keeps falling for higher consumption points, up to 3.3 mmbtu. It is interesting to note that the PBS uses prices for consumption up to 3.3 mmbtu (90 units) for the lowest consumption quintile, when in fact it covers almost three quintiles. Even then, there is no way the price change comes to 480 percent, even if one uses the rather flawed assumption of the PBS including fixed charges in November price, while not including that for January 2023.
For the protected category, which is most likely to fall in the next two consumption quintiles, the price change is highest, at over 600 percent at a consumption point of 20 units – and then drastically falls to within 200 percent beyond 90 units of gas consumption. There is no way the average price change for all five quintiles comes as high as 280 percent. Only the third quintile would return a change in excess of 300 percent, that too when considering the use of an extremely flawed methodology of considering fixed charges for November 2023, while ignoring that in January 2023.
It must be remembered that the PBS methodology already does not do it right, as it takes no account of the previous slab benefit that is available for 95 percent of domestic gas consumers. For the lower slabs, it fails to incorporate the minimum charges, regardless of consumption, which is a possible explanation why the bottom quintile change is so devoid of ground reality.
This is clearly not an attempt to take a dig at the PBS for fudging numbers – as it does not attempt to undermine the price change – it does the exact opposite instead. The PBS in the past has been open and honest about mistakes and has corrected overlooking, when pointed at (case in point: treatment of gas price change in 2019).
Considering the importance of inflation
Considering the importance of inflation readings in the broader context of monetary price settings, it is imperative that the PBS offers more clarity and transparency around it. Inflation forecasting should be much easier, more transparent, and most importantly, correct. Here is hoping the PBS comes up with an explainer on how it has (ill)treated the recent gas price change.
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