More alcohol in SA’s inflation-rate basket

If the changes in the basket of products used to calculate the inflation rate are anything to go by, people seem to like to work, drink gin, listen to music and put on make-up more than they did five years ago. They also appear to like their clothes soft and enjoy making instant cappuccino – to drink in the dark.

The biggest change made by Statistics South Africa (Stats SA) in updating the consumer price index (CPI) to reflect changing consumer behaviour is that the “average shopping basket” contains more alcohol, while people are spending less on electricity.

Stats SA added gin to the basket of 415 products as it has become very popular, while the weighting of alcohol was increased overall.

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Patrick Kelly, chief director of price statistics at Stats SA, pointed out during a presentation of changes to the representative basket on Monday that the weighting of alcohol increased by 0.44%. This is the largest increase in all of the categories.

Effectively, it means people are likely to spend more of their disposable income on alcohol – nearly half a percent more compared to the older basket of 2016.

Fuel spending down

In comparison, the proportion of household expenditure spent on fuel has increased by only 0.24% since 2016, while the weight of expenditure on electricity decreased by 0.12%.

Additional data supplied by Stats SA shows that, on average, nearly 4.3% of consumers’ total expenditure throughout SA goes to purchasing alcohol. This excludes the alcohol that is included in people’s spend in restaurants.

Eating and drinking in restaurants accounts for 2.2% of people’s expenditure nationwide.

Stats SA says changes to the consumer inflation basket were necessary because household spending habits have shifted since it was last updated in 2016.

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“It is best practice for national statistical offices to update the basket at least every five years to ensure that it adequately reflects trends in household spending, technology and consumer tastes. The process involves removing items that are no longer relevant and including new items that have attracted a sizable share of consumer expenditure.

Kelly says the CPI basket now contains 415 items, up from 404 in 2016 – 14 items were added, two were removed, and some products were either split into two or combined into one.

New products

Basket changes were based on “very detailed” sales data sourced from retail chains, according to the Stats SA presentation.

The products added to the basket include dairy/fruit juice blends, samp, pureed baby food, cappuccino sachets, jam, gin, printer paper, ink cartridges, sound bars and speakers, sanitary wipes, razors, make-up foundation, floor and wall tiles, and fabric softener.

Energy saving and traditional light bulbs, previously listed as separate items, were amalgamated into one product following the near disappearance of incandescent bulbs. Maize meal and super maize meal were also merged into one product.

Internet services were split into two distinct products, namely fixed line services and wireless internet.

DVD players and TV aerials (as well as satellite dishes) were dropped from the basket, while the monthly collection of prices of pre-recorded compact discs will, in future, include the prices of music subscription and streaming services to reflect the growth in consumer appetite for streaming music services, and the product will be renamed as such.

Stats SA notes that rewritable CDs and postage stamps were removed from the basket during the previous update in 2016 and VHS recorders and cassettes were removed in 2009.

International practices

The statisticians at Stats SA say it is necessary to regularly update the basic basket of products and services that people buy to ensure that the CPI and inflation rate remain realistic and reflect the true cost of living in SA as people change their spending habits.

“As the basket and the weighting of products gets older, it becomes less relevant,” says Kelly. “Taste changes and new products are introduced, while there is also a bit of substitution bias in that people switch to products which might have a lower rate of inflation.”

Stats SA says international standards require the CPI basket to be updated at least every five years to ensure that the inflation measurement reflects changes in consumer expenditure patterns. The CPI weights and basket were last updated in January 2017.

Lack of funding

The statisticians bemoan the fact that Stats SA did not have the funding to conduct a full-scale survey on household income and expenditure this time around. Due to budget cuts, Stats SA has not been allocated funding to conduct a household expenditure survey since the living conditions survey in 2014/15.

“It is a complex survey and can take up to 12 months to complete. It is a critical survey. It not only provides data on how people spend their money, but [also] provides crucial data on poverty levels,” says Kelly.

Stats SA had to rely on the figures for final household consumption expenditure as contained in the national accounts.

“This is the first time that Stats SA has fully relied on national accounts data for recalibrating CPI weights. However, the sources and methods used to update the basket and weights are nevertheless consistent with international good practice,” Stats SA noted in its formal report on the new basket.

It notes that a shortcoming of this method is that the national accounts provide only figures for the whole of the country, while a survey produces data for different provinces, for cities and for rural areas, as well as for different income groups.

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“While the national accounts do not provide the same level of product, geographic and demographic detail as a household expenditure survey, they have the advantage of deriving expenditure estimates from a wide range of data sources,” says Stats SA, with Kelly saying that this is an acceptable solution in the short term, but not for the long term.

The previous weights, referencing December 2016, were adjusted with growth rates to 2019. The latter was selected as it is the most recent period prior to the Covid-19-induced economic disruptions and for which the national accounts information will not be substantially revised.

Stats SA will update the CPI basket of goods and services, and the corresponding weights, with effect from the January 2022 CPI.

There will be no changes to the collection, processing or compilation methods, which are consistent with international best practice, says Stats SA.