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The government is revising the formula for calculating inflation

According to reports, the federal government has agreed in principle to revise the methodology for calculating the country’s inflation rate, and the Pakistan Bureau of Statistics (PBS) has begun preliminary work in this regard.

According to reports, the authorities will change the weighting and ratio of the goods in the basket used to generate the Consumer Price Index (CPI) and Sensitive Price Index (SPI), which are used to assess inflation and price increases.

Also read: SBP claims to solely provide projections: Inflation

Furthermore, the sources said that, as part of the process of finalising the new formula, the population of rural and urban regions, as well as their share of GDP and inflation, would be examined to eliminate the unjustified disparity between the proportion of the population and the rate of inflation.

For example, the sources said the population of Karachi, which was included in the inflation basket, had been around 10% of the country’s population, but its weightage to calculate the inflation is 40%. “The new formula will reduce the weight and proportion of Karachi in the inflation basket,” a source said.

A senior official of the PBS said that the formula to determine the inflation rate had to be revised every 10 years. “The current formula is in vogue since 2015-16. Prior to it the base year was 2007-08,” the official added.

Also read: On inflation, the SBP raises its rate by 150 basis points to 8.75 percent

However, the official continued, it was not a legal requirement to review the formula every 10 years. “It sets a precedent for regulating the pricing mechanism in the country and the formula can be revised even earlier,” the official added.

The formula for determining inflation is worked out as per international practices, as the figures calculated on its basis are used by global institutions, including the International Monetary Fund (IMF) and the World Bank, in regional comparative studies.

“Therefore, the formula is to be worked out by keeping in consideration all aspects so that the statistics determined on the basis of that have the confidence of the international institutions,” the official said, adding that the process for a new formula would take time.

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