The Consumer Price Index (CPI) is at its simplest a measure of inflation built on spending patterns.
To construct it, statisticians study a sample of households and compare what they consume against what they earn, answering one question: What do Namibians spend their money on?
The answer becomes the basket weights, showing how much of the average household’s consumption is likely to flow towards each category.
A price rise in a heavily weighted category like housing or transport moves the headline figure sharply, while a big jump in a lightly weighted one barely registers.
South Africa’s update added and removed line items to keep the basket current. E-cigarettes, snuff and e-hailing services came in, while CDs, TV licences and digital cameras went out.
Removal does not necessarily mean South Africans have stopped buying these items, rather that the money spent on them has shrunk to a share too small to move the average household’s costs, so the basket lets them go.
Using the South African basket as a guide, it is likely that financial services and insurance will finally receive its own basket instead of being included in miscellaneous services.
It’s also interesting to note that while weights tend to be around similar levels between the sister countries, Namibians spend nearly three times as much on alcohol and tobacco than our neighbours to the south. An update to our CPI basket is well overdue and will make inflation reporting more accurate.
– Ida Williams is an economist for Cirrus Capital.
