STATISTICS SA took an unprecedented step this week in delaying the latest consumer inflation figures.
It was tight-lipped about the reasons, stating simply that an "internal review" of the data was being conducted. But most analysts speculate that the delay had something to do with outdated rental figures used in the consumer price index (CPI), which could be distorting the inflation numbers.
Last month's consumer inflation figures will now be released only at the end of next week less than two weeks before the Reserve Bank's monetary policy committee meets to decide whether or not to lower interest rates.
In recent weeks, analysts have pointed out that outdated rental figures could be overstating CPIX (consumer inflation excluding mortgages) by almost 2%. It all stems from the way Stats SA collates figures for rents.
Certain prices in the CPI basket are surveyed on a monthly, quarterly and annual basis. Prices for goods such as food, clothing and petrol are collected monthly, while price information for goods such as furniture, electrical appliances and medical services are collected quarterly.
Rents were surveyed annually in October, with Stats SA relying on its yearly October Household Survey for rental costs. There was usually a lag of more than a year before rental costs from the household survey could be included in the CPI figures usually adjusted in January.
But the October household survey was discontinued in 1999. Rent information gathered in the 1999 survey was fed into the CPI figures from January 2001.
This showed that rents increased an annual average of 34,5% with rents for houses, flats and townhouses increasing 2,3%, 30,4% and 94,3% annually. With no rental survey since 1999, there appear to be no changes in annual rental figures in the CPI data since last year. So in January 2002 and January this year, it appears that Stats SA simply assumed that rents increased by the same level as they did in 1999 34,5% annually.
Stats SA's failure to survey rents after the October household survey was terminated seems to be due to lack of funding or resources. Pali Lehohla, director-general of Stats SA, says no rental surveys have been done "as a result of a process of prioritisation, where some more pressing information, such as a labour force surveys, was necessary".
And this is where the dispute has come in: economists have taken Stats SA to task for what they say are exaggerated increases for rents, based on an outdated rental survey.
Investec Asset Management's portfolio manager, John Stopford, estimates that rents rose annually by 10%-25%, rather than 34,5%.
The implication, says Stopford, is that CPIX could be overstated by almost 2% which, if corrected, could have a material effect CPIX going forward, and on monetary policy. But its effect on CPIX data depends on how Stats SA addresses the problem.
For the time being, Stats SA is keeping mum about what it will do. All Lehohla would say was it was reviewing data, with rentals being one of the components it would look at.
Stats SA said this month it would include information from new data sources, such as the databases of banks and rental agencies, to compare rental figures being used in the CPI data. This was meant to be included in May's CPI figures, set to be released next month.
However, Stats SA's abrupt rescheduling of the release of CPI figures led some to believe that the distortion was serious enough to rectify the figures immediately.
The latest CPI figures are crucial as they come soon before the Bank decides on interest rates.
Most economists believe the Bank will cut rates 1% next month, but hawkish statements from the Bank in particular its concern about missing the inflation target of 3%-6% next year have damped optimism about a rate cut.
If CPIX is overstated, and the situation is rectified, CPIX could be much lower going forward, boding well for the interest-rate outlook. With the Bank forecasting CPIX to average 5,7% next year, lower inflation as a result of a new rental survey would put the Bank comfortably within its target next year.
Dawie Roodt, PLJ Financial Services chief economist, estimates that with rental increases of 10%25%, CPIX may be overstated by 1,3%-3,1%. March's CPIX figure of 11,2% should have been between 8,1% and 9,9%, he says. "The potential impact on the economy is huge based on the official data we expected two, possibly three, interest rates cuts before year-end. We now have to revise this to three cuts, with a possibility of a fourth. The inflation targets will most likely be met even if the Bank were to cut the repo rate by 2% in June."
Despite the uncertainty created in the market by the surprise delay in the CPI figures, analysts welcomed Stats SA's move to have another look at the figures. "Stats SA deserve credit for addressing this issue promptly now that it has been brought to their attention importantly, the May 30 release date means any changes made as a result of this review will be available to the Bank in time for the June meeting, which should bode well for interest rates," says Stopford.
Comment: Page 10
May 21 2003 07:09:13:000AM Nasreen Seria Business Day 1st Edition
Publisher: Business Day
Source: Nasreen Seria
Markets await Stats SA's next move
Posted On Wednesday, 21 May 2003 02:00 Published by eProperty News
Correction of outdated rental figures could bode well for rate cuts, analysts say.
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