Spending habits need updating to get real sense of inflation – Simmons
The government should update details on spending habits so it can better calculate the rate of inflation, a top economist has said.
Craig Simmons said that a consumer spending survey had not been conducted since 2013 – and that shopping habits had changed since then.
Mr Simmons was speaking after Wayne Furbert, the Cabinet office minister, defended the official inflation figures.
The Department of Statistics calculated that inflation was running at an average of 1.2 per cent in the first nine months of last year.
But inflation in the US, Bermuda’s major trading partner and source of most of its imports, went up by seven per cent in 2021.
Mr Simmons, a lecturer at Bermuda College, said: “I think the source of discrepancy between Bermuda and US inflation is methodological.
“The Consumer Price Index measures price changes in a basket of goods and services, and so, the first step in calculating the CPI is the choice of which goods and services to include in the basket, which is no easy task.
“Once you’ve determined the basket’s composition, then you move on to the weighting of each good and service.
“These two steps – choosing what goes into the basket and the weighting of what goes in – are based on a survey of consumer spending patterns.
“In the US, these surveys are conducted regularly, but the last local survey was in 2013 – the Household Expenditure Survey 2013.
“I assume a lot has changed since then – new goods and services have come into the market and the weighing of foods versus energy versus other goods and services has probably changed.
“How much have these factors changed? That’s why we need to conduct another consumer spending survey.”
Critics claimed that inflation rates should be similar in Bermuda and the US because of the close relationship.
A former finance minister said that Mr Furbert should question the figures because they did not pass “the common sense test”.
Bob Richards, who was in charge of island’s purse strings as finance minister in a One Bermuda Alliance government between 2012 and 2017, agreed that the island’s inflation rate should follow US trends.
Mr Richards said: “Any government statistics need to be looked at very carefully and people have a right to challenge them.
“They are not reality – they are estimates of reality – and when you’re making estimates, there is a margin for error.
“So they need to pass the common sense test and be fully scrutinised. If the minister is just willing to accept them than he needs to rethink that position.”
Mr Richards added: “Common sense would suggest that there would not be much difference between Bermuda’s inflation and where we import most of our goods from.
“So if our numbers are significantly lower than the US, then our methodology needs to be scrutinised.”
Mr Richards said: “We need to have a culture where government statistics are continually being scrutinised, rather than just accepting them. There are professionals in the private sector who are constantly scrutinising figures.
“When I was finance minister, there were some figures that came out and I had a huge row with the Department of Statistics about them. In the following quarter, they corrected the mistake that I had pointed out.”
The Opposition One Bermuda Alliance last month claimed that the government’s figures “did not add up”.
But Mr Furbert said last week: “I’m very happy with the work that is being done by the same department that was working for the Opposition when they were in government.
“They believed the numbers when they were in Government and we also believe the work that is being carried out by them.
“It’s the same basket of goods that has been used for years and so, if it’s chicken, it’s chicken in 2017, 2015, and 2020 and 2021.”
Mr Furbert added: “I trust what the department is giving to us, based on their experience and based on the basket of goods they’ve been managing for years.”
The OBA was not the only organisation to raise questions about the Government statistics.
A Bermuda investment firm estimated last October that the rate of inflation could be four times higher than the official figure – much more in line with the US.
Anchor Investment Management highlighted in a report that Bermuda’s Consumer Price Index usually shadowed its US counterpart.
The report added: “We especially take issue with figures recently reported for goods such as food and household goods.”
Bermuda has once again topped a poll of the world’s most expensive places to live.
Numbeo, a price-comparison website, gave Bermuda a cost of living index of 146.04 – way ahead of second-placed Switzerland on 123.35 and Norway, which was third on 100.90.
Iceland and Barbados rounded out the top five.
Numbeo compiled the table based on costs relative to New York City, with the Big Apple as the “100” baseline on the scale.
The rankings were based on the average price of goods and services, which included groceries, restaurants, transport and utilities, across 139 countries.
The ratings did not include the cost of housing, rents or mortgages.
Bermuda also topped Numbeo’s table last year, with a marginally higher cost of living index of 147.77.
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