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Business: Solidarity Questions Validity Of New Inflation Basket


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Solidarity will host a conference this coming Thursday concerning the new inflation basket of Statistics South Africa (StatsSA) that will be implemented in January 2009. The aim of the conference is to urgently investigate the validity of the new basket, as well as the implications this will have on South Africa's inflation prospects.

Solidarity is concerned that the new inflation basket, which will be in effect from January 2009, is already outdated. "The result is that the new basket and weights do not reflect true inflation. The International Labour Organisation (ILO) recommends that inflation baskets should be adjusted every three years. The last adjustment to the South African basket was in 2000. However, the 2009 adjustment is based on the 2005/2006 Income and Expenditure Survey. If the three-year rule of the ILO is applied, the new inflation figure is already outdated," says Dirk Hermann, deputy general secretary of Solidarity.

On Thursday Solidarity will release a report compiled by the organisation's Research Institute. "Our research shows that in changing economies, where rapid behavioural changes take place, it is of critical importance to regularly adjust inflation baskets. With the current turnaround time of StatsSA, the 2005/2006 survey could be in use until 2014 (their own set changing time is five years). If we have to wait another nine years from 2009 for an adjustment, the 2005 survey could only be replaced in 2018," says Hermann.

In its report, Solidarity identifies several problems regarding the new inflation basket. "The problem with the 2005/2006 survey is that inflation was at its lowest for the previous five years. Inflation for certain foodstuffs was even negative. Obviously this influenced the spending patterns of South Africans. Consequently, the survey also has an influence on which items are included in the basket and which ones are excluded. The weights are also adjusted in accordance with the 2005/2006 survey. For example, the weight of food and non-alcoholic beverages was 26,6 points in 2000, while it counts 18,28 points in the new inflation basket. The income and expenditure patterns of 2005/2006 differ radically from those in 2008. From 2005 to 2008 certain food prices have already doubled and, as a result, the use thereof has also changed," says Hermann.

The big discussion will be between some of South Africa's leading economists and experts on inflation.

Date: Thursday, 27 November 2008

Time: 10:00 to 14:00

Place: Johannesburg Civic Theatre

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