StatsSA cocks it again!!

Below extract taken from Moneyweb given by Andre Roux of Investec. I am noeconomist, but if this is true (and certainly every one “in the know” appears to corroberate the theory) then StatsSA have made a mistake. This is the second time in five years that they have done this, something needs to be done here as these errors have huge impacts on the economic outlook and therefore affects every man in the street.

“Official CPIX for May was 10.9%, but had the numbers been rebased and reweighted last year as they should have been, our calculations show actual CPIX of 8.7%,” said André Roux, head of fixed income at Investec Asset Management. “The official peak in inflation in September will be in the order of 13%, once the impact of the electricity tariff adjustments is fully incorporated. Once again, if the rebasing and reweighting had been implemented, the real peak in inflation would have been around 10%.”

These findings echo 2003, when John Stopford, joint head of fixed income at Investec Asset Management, discovered that CPIX had been overstated by 1.9%. He found mistakes in the way that the rental category had been handled – not only had StatsSA overestimated the inflation rate of rentals, but its de facto weighting was growing, thereby compounding the effect.

“Five years on from their last major failure to calculate inflation correctly, it looks as though StatsSA may have done it again. They are well aware that substitution effects and rising incomes can materially change consumer spending patterns over time. That is why, as they admit, international best practice is to reweight and rebase consumer price indices at least every five years. By not doing so last year, five years after the previous recalculation, we estimate that CPIX will now peak about 3 percentage points higher this year than it should have done if calculated correctly.

These errors will though not change my view that we all need to be looking vary carefully at our lifestyles to ensure that we are using our cash wisely and ensuring that we keep our heads above the water. The only plus is that maybe, just maybe, the outlook on further interest rate increases has moved from a definite two more before year to end to maybe one more.

Let’s keep it tight out there.