Minister defends inflation calculations
The labour minister has hit back at criticisms of how the inflation rate is calculated, saying that the Government “stands firmly behind” the methodology used for the Consumer Price Index.
Jason Hayward claimed rents, which account for one quarter of the Index, were not increasing, and this was one of the reasons why inflation in Bermuda was much lower than in most other Western countries, where prices have skyrocketed in the past year.
Mr Hayward, a former Department of Statistics employee, stood by the calculations used to weight the CPI, and also rejected calls for it to be revised before work on a new revision starts next year.
But he also admitted that the research used to set the methodology should be carried out every five years, not every ten years as is the current practice.
He said the CPI was based on a shopping basket of goods divided into nine expenditure groups, each of which was weighted based on a consumer spending survey, which was last carried out in 2013.
Mr Hayward said: “The computation of the CPI begins with the collection of over 3,100 price data from retail stores and household service providers.
“The frequency of pricing varies and is conducted either monthly, quarterly or annually.
“Once the prices of goods and services have been collected, they are verified and cross-checked to ensure validity of the data being used in the CPI calculations.
“Prices are compared with the previous month’s and year’s price data to monitor price fluctuations and maintain consistency.
“It is imperative to maintain the ‘fixed’ shopping basket in terms of the quality of items it contains.
“Over the life of the CPI shopping basket, the sale of some goods and services in the basket will be discontinued and the qualitative composition of others will change.”
Mr Hayward said that based on the last survey, the rent sector accounted for the largest household spending share or weight at 26.7 per cent.
He said: “Currently rents are stable. The weighting of the rent sector is causing a stabilising effect on the overall rate of inflation as other sectors such as food, which is rising month-to-month.
“If there is not significant movement in the sectors with the largest weights, the inflation rate will remain moderate.”
The other heaviest weighted sectors of the CPI are food at 11.5 per cent; household goods, services and supplies at 11.6 per cent; transport and vehicles at 13 per cent; education, recreation, entertainment and reading at 14.7 per cent; and health and personal care at 13 per cent.
Mr Hayward admitted international best practices now indicated that the consumer spending survey should be carried out every five years instead of every ten years as it has been in Bermuda. It should also be carried out over a 12 month period to better capture seasonal spending habits, he said.
He added: “It is anticipated that the department will commence data collection on a new Household Expenditure Survey within the next 12 months.
“However, a revised CPI ‘shopping basket’ and expenditure weights will not become available until approximately two years after the data collection is completed, which will see the base year shift from 2015 to 2025.“
In response to questions from Cole Simons, the Opposition Leader, Mr Hayward said plans to carry out a new household expenditure survey in 2019 and 2020 were derailed by the Covid-19 pandemic. The next best time to do it is next year, he said.
Mr Simons also asked how cost of living adjustments could be made if the new household expenditure survey was not carried out.