Inflation in Bangladesh: Does the Changing Consumption Pattern Affect its Measurement ?

Ensuring price stability is one of the prime objectives of the monetary policy in Bangladesh, whereby the latest monetary policy statement aims at rapid growth with price stability. This note examines how changes in the consumption patterns as derived from the household income and expenditure surveys (HIES) of 1995/96 and 2005 affect the average weights of goods in the CPI and consequently the level of inflation in the economy. The note also makes a brief assessment of the implications of using average weights in the consumption basket rather than using specific weights representing different expenditure groups. The study shows that it is important to capture the changing structure of household consumption and ensure the use of representative weights in constructing CPI inflation. This generates a more realistic picture of price changes in the economy. Such changes have significant implications and should be effectively used to adjust the distribution of CPI weights in measuring inflation, so as to provide more accurate estimates of inflation in Bangladesh. [BB PP no.0802]