Government has no plan to review methodology used for calculating inflation indices

ISLAMABAD: "The government has currently no plans to review the methodology used for calculating inflation indices however the process of rebasing weightage formula for Large Scale Manufacturing (LSM) industries has been initiated with the objective of presenting a more realistic picture."

This was revealed by senior officials of Pakistan Bureau of Statistics (PBS) while talking to Business Recorder.

The Advisor to the Prime Minister on Finance, Dr Hafeez Sheikh during the Monetary and Fiscal Policies Coordination Board (MFPCB) meeting expressed serious reservations on the integrity of data compiled by PBS, particularly inflation and unemployment.

The Advisor to the Prime Minister on Commerce Razzak Dawood also expressed his doubts over the credibility of data on prices of commodities collected by PBS during a parliamentary standing committee meeting.

PBS spokesperson and Director Prices Attiqur Rehman told Business Recorder that no directives have been received for reviewing data/methodology for assessing inflation indices however he acknowledged that there is always room for improvement.

PBS methodology and data is being reviewed in light of intentional organizations /institutions like United Nations, International Monetary Fund (IMF), World Bank and Asian Development Bank recommendations and observations to bring it at par with regional and international best practices, he added.

The spokesperson further said that initially PBS inflation was based on urban data collection in 2007-08, which was criticized by various quarters and it was recommended that data from rural areas be collected as well. The criterion was amended and rural data collection was included to present a more realistic picture.

The earlier methodology was using only slab wise electricity rates without taking in to account taxes, surcharges and Fuel Price Adjustment (FPA). In the new base taxes and fuel price adjustments have been included to determine electricity prices. Slab wise consumer weights have also been introduced for calculation of quintile and combined prices, said Rehman adding that currently there is no exercise at PBS to revise data collection or methodology for assessing inflation in the country.

Another official admitted that the weightage formula of PBS used for LSM industries output is redundant and does not present an accurate picture. There are two sources of data on LSM at present. First, Census of Manufacturing Industries (CMI) measures production and structural changes of large-scale manufacturing industries and provides data on values of inputs and outputs, census value added, contribution to GDP, fixed assets, stocks, employment and employment cost and industrial taxes.

The CMI takes into account new industrial developments and captures new industrial products and establishments and is used to develop new weights for Quantum Index of Manufacturing.

The second source is monthly data of quantum index number of large scale manufacturing industries (QIM) computed in PBS on the basis of latest production data of 112 items collected from three agencies including Oil Companies Advisory Committee (OCAC), Ministry of Industries and Provincial Bureau of Statistics (BOS). The rebasing methodology is under process and CMI report is expected to be released by December after which new weightage formula would be used, he added.

Copyright Business Recorder, 2020