A proposed mechanism for calculating inflation according to the consumer price index in Iraq
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Ali Dadouch
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Ali Dadouch
The Consumer Price Index (CPI) is defined as a measure of the incremental average change in the prices paid by urban consumers for a market basket of consumer goods and services.
The index measures the monthly change in the prices paid by consumers, and the US Bureau of Labor Statistics ( BLS ) uses the Consumer Price Index to calculate the consumer price index as a weighted average of the prices of a basket of goods and services representing total consumer spending in the United States, and the consumer price index is one of the most common measures in calculating Inflation and deflation, where the CPI report uses a different survey methodology and a sample of prices and index weights different from the Producer Price Index ( PPI ), which measures the change in prices received by producers of goods and services, and the index is determined according to various groups of goods and services arranged into (8) categories. Expenditures included, as shown in the figure below:
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User fees and sales or production taxes are included, while income taxes and prices for investments such as stocks, bonds, or a life insurance policy are not part of the CPI. The prices of the housing category, which represent approximately one third of the general consumer price index, are based on a survey of the rental prices of 43,000 housing units, which are then used to calculate the rise in rent prices as well as the owners' equivalent. The owner's equivalent category represents the rent equivalent of owner-occupied dwellings to correctly reflect the share of housing costs in consumer spending.
The CPI market basket has been developed from detailed spending information provided by families and individuals about what they have actually purchased, as there is a time lag between the spending survey and its use in the CPI. For example, the US Bureau of Labor Statistics has basedIn calculating the consumer price index in the years (2020-2021) to the data collected from consumer spending surveys for the years (2017-2018), and in each of those years, about (24,000) thousand consumers from all over the country provided quarterly information on their spending habits Their own in the interview survey, which includes collecting information about frequently purchased items (food, personal care products, etc.), and during the past two years (12,000) thousand American consumers kept records of everything they bought, so the mechanism for calculating the index came According to expenditure information for about (24,000) thousand consumers in the form of weekly diaries and (48,000) thousand quarterly interviews were used to determine the importance or weight of the categories of elements in the structure of the CPI index .
According to US Bureau of Labor Statistics ( BLS ) data for the month of June, annual consumer prices in the US rose by (9.1%), the largest increase in more than four decades, and this has affected American society and made them deeper into paying for gasoline, food and health care. And rents, the Federal Reserve is sure to raise interest rates by another 75 basis points at the end of this month.
The data also indicated an increase in the prices of a group of other goods and services, including cars, clothes and home furniture, as this rise in the consumer price index is the largest in almost 17 years on a monthly basis.
The inflation data came on the heels of stronger-than-expected job growth in June, and indicated that the US central bank's tight monetary policy stance has made little progress so far in calming (reducing) demand and lowering inflation targeting to 2%.
And with home rents rising (the biggest rise in home rents in 36 years), inflation could become entrenched, with rents being one of the largest and most stable categories of inflation, raising the risk that the Fed will continue to raise interest rates in the second half. from 2022. Although high inflation has affected all countries of the world, it represents a political danger to US President (Joe Biden) and his Democratic Party, who enters the congressional elections next November.
Despite the Fed’s intentions to fight inflation as a priority, the inflation situation is increasing in the economy day by day. Inflation rose by (1.3%) last month, the largest monthly rise since September 2005, and the rise in energy prices by (7.5%) Almost half of the increase in the consumer price index, gasoline prices jumped by (11.2%), while natural gas prices rose by (8.2%), the largest percentage since October 2005.
The cost of food consumed at home increased by (1%), to record the sixth consecutive monthly increase, and during the whole year (since June 2021) the consumer price index jumped by (9.1%). This was the largest rise since 1981, as these increases in consumer prices were most impacted by (crowded global supply chains and massive fiscal stimulus from governments early in the COVID-19 pandemic , as well as the ongoing Russia-Ukraine war, which caused rising global food and fuel prices),
The same applies to the rest of the goods and services. The cost of car maintenance and repair has increased by (2%), which is the largest percentage since September 1974, and health care costs have increased by (0.7%) with a record increase in the cost of dental services.
Clothing prices decreased (0.8%), although retailers such as Walmart (WMT.N) and Target (TGT.N) reported excess inventory requiring discounts (i.e. surplus clothing items with discounts). Also saw a rise.
As we know that high inflation is eroding wage gains, which, along with higher borrowing costs, can lead to lower consumer spending, making us witness strong prospects for the start of an economic recession in early 2023.
The most prominent question is, where is the report of the Consumer Price Index for the Ministry of Planning, which was not issued for several months past, and for real reasons that I am completely ignorant of.
Here, we suggest a simple mechanism for calculating inflation through the consumer price index, if the ministry wanted to conduct a field survey in an easy and simplified way, which is that (a large group of shop and supermarket owners in different areas are chosen to measure the rates of change in goods, services and foodstuffs, and they are From the same accountant window (the cashier), thus facilitating the measurement process for each month).
As for housing, it can be divided into several categories, including (housing rents in low- and middle-income areas, including in high-income areas, in addition to rents in tourist areas). The same applies to clothes and other goods that can be calculated through commercial places and malls.
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