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Construction of CPIX Data for Forecasting and Modelling in South Africa

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  • Janine Aron
  • John Muellbauer

Abstract

South Africa adopted inflation targeting in 2000, targeting the consumer price index (CPI) excluding mortgage interest cost (or CPIX), for “metropolitan and urban areasâ€. However, no clear technical account of the methodology of construction of CPI and CPIX is available from Statistics South Africa, as published by reputable government statistical agencies in other countries. We aim to enhance transparency by explaining the methodology as we understand it, and to encourage the official publication of a technical handbook of CPI methodology. We provide evidence that the CPIX data published by Statistics South Africa uses a methodology inconsistent with their construction of the CPI data. As a result, annual increases in CPIX were overstated by as much as one percent at the end of 2001 and in January, 2002; and understated by a similar amount in November, 2003 to January, 2004. Further, while the CPIX (`metropolitan and urban areas`) measure only became relevant to monetary policy setting and wage contracts from 2000, and is published monthly only from 1997, a far longer time series is required for the forecasting and modelling exercises of the South African Reserve Bank (SARB) and others. We produce estimates of CPIX (`metropolitan and urban areas`) back to 1997, and CPIX (`metropolitan areas`) back to 1970, on a consistent methodology, using monthly price indices, the appropriate weights, and linking correctly when rebasing Both measures differ from those published by Statistics South Africa (published back to 1994 only in the latter case). They also differ significantly from internal SARB quarterly estimates of historical CPIX data, used by SARB modellers and the International Monetary Fund.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2004-09.

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Date of creation: 01 Mar 2004
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Handle: RePEc:oxf:wpaper:wps/2004-09

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  1. Ashok Bhundia, 2002. "An Empirical Investigation of Exchange Rate Pass-Through in South Africa," IMF Working Papers 02/165, International Monetary Fund.
  2. Aron, Janine & Muellbauer, John, 2002. "Interest Rate Effects on Output: Evidence from a GDP Forecasting Model for South Africa," CEPR Discussion Papers 3595, C.E.P.R. Discussion Papers.
  3. Janine Aron & John Muellbauer & Coen Pretorius, 2004. "A Framework for Forecasting the Components of the Consumer Price Index: application to South Africa," CSAE Working Paper Series 2004-07, Centre for the Study of African Economies, University of Oxford.
  4. Robert J. Gordon, 2000. "The Boskin Commission Report and its Aftermath," NBER Working Papers 7759, National Bureau of Economic Research, Inc.
  5. Janine Aron & John Muellbauer & Coen Pretorius, 2004. "A Framework for Forecasting the Components of the Consumer Price," Development and Comp Systems 0409054, EconWPA.
  6. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557, August.
  7. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1.
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Cited by:
  1. Aron, Janine & Muellbauer, John, 2010. "Does aggregating forecasts by CPI component improve inflation forecast accuracy in South Africa?," CEPR Discussion Papers 7895, C.E.P.R. Discussion Papers.
  2. Aron, Janine & Muellbauer, John, 2012. "Improving forecasting in an emerging economy, South Africa: Changing trends, long run restrictions and disaggregation," International Journal of Forecasting, Elsevier, vol. 28(2), pages 456-476.
  3. Aron, Janine & Muellbauer, John, 2006. "Review of Monetary Policy in South Africa: 1994-2004," CEPR Discussion Papers 5831, C.E.P.R. Discussion Papers.
  4. Janine Aron & John Muellbauer & Coen Pretorius, 2004. "A Framework for Forecasting the Components of the Consumer Price," Development and Comp Systems 0409054, EconWPA.
  5. Janine Aron & John Muellbauer, 2008. "Multi-sector inflation forecasting - quarterly models for South Africa," Economics Series Working Papers WPS/2008-27, University of Oxford, Department of Economics.
  6. Janine Aron & John Muellbauer, 2009. "Some Issues in Modeling and Forecasting Inflation in South Africa," CSAE Working Paper Series 2009-01, Centre for the Study of African Economies, University of Oxford.
  7. Janine Aron & John Muellbauer, 2007. "Review of Monetary Policy in South Africa since 1994," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 16(5), pages 705-744, November.
  8. Janine Aron & John Muellbauer & B. Smit, 2004. "A Structural Model of the Inflation Process in South Africa," CSAE Working Paper Series 2004-08, Centre for the Study of African Economies, University of Oxford.

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