Economics Don Backs Bawumia …

Economics Don Backs Bawumia …

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Dr. Mahamudu Bawumia 
Professor J. Atsu Amegashie, Professor of Economics at the University of Guelph, Canada has virtually backed Dr. Mahamudu Bawumia in questioning the credibility of the Ghana Statistical Service’s data on inflation and challenged the Service to publish the data of the actual prices used in computing the inflation figures.

In an Article titled ‘Dr. Bawumia, the GSS and Inflation’, Professor Atsu Amegashie basically argues that for the GSS data on inflation to be credible, one must believe that since July 2013, cost of food has increased by an average of only 5%.

Professor Atsu Amegashie also argues that one must also believe that the price of vegetables has actually fallen by 6% since July 2013 (last year) and that the price of fish has only increased by 3.1%; which is what the GSS claims per its data on inflation.

In the article, Prof. Atsu Amegashie said, ‘According to the GSS’ July 2014 CPI newsletter:

‘The Food and non-alcoholic beverages group recorded a year-on-year inflation rate of 5.0 percent. … The non-food group recorded a year-on-year inflation rate of 23.1 percent in July 2014 … Two subgroups recorded year-on-year inflation rates higher than the group’s average rate of 23.1 percent). Housing, water, electricity, gas and other fuels recorded the highest rate of 62.0 percent followed by Transport with 38.3 percent.’

Therefore, the GSS’ computed rates of inflation for housing, water, electricity, gas and other fuels (62%) and transport (38.3%) are consistent with what Bawumia calls our ‘collective experience.’ So why is the overall rate of inflation equal to 15.3%?

The food group, with a weight of 44.91% in the CPI, recorded an inflation rate of 5%. Within the non-food good, subgroups like health; clothing and footwear; recreation; furnishings, household equipment, and routine maintenance; communication, and hotels and restaurants, recorded inflation rates of 13%, 12.9%, 12.4%, 9.3%, 8.5%, and 5% respectively. These rates were much lower than the 62% and 38% rates recorded by the housing, water, electricity, gas, other fuels, and transport subgroups. The overall inflation rate for the non-food group was 23.1%. Therefore, it is possible that a weighted average of 5% for the food group and 23.1% for the non-food group could give a figure that is close to 15.3%. A simple calculation shows that 0.4491(5%) + 0.5509(23.1%) = 14.97%, which is approximately equal to 15% (see the appendices at the weblink below for a more detailed analysis).

Based on the preceding discussion, it is obvious that the driving force behind the GSS’ relatively low inflation rate of 15.3%, which appears to be at variance with what Dr. Bawumia calls our ‘collective experience’, is the very low inflation rate of 5% for food.

Therefore, Dr. Bawumia’s allegation boils down to the following question: ‘is it credible that between July 2013 and July 2014, the price/cost of food increased by only 5%.’? In fact, according to the GSS, the price of vegetables fell by 6% between July 2013 and July 2014 and the price of fish increased by only

3.1% within the same period:
Prof. Atsu Amegashie, proceeded to explain how vital the data on vegetables and fish for example were critical to the final figure the GSS produces for inflation.

‘Vegetables and fish, components of the food group, have a combined weight of almost 23% while housing, water, electricity, gas other fuels, and transport, components of the non-food group, have a combined weight of 13%.’, he said.

Professor Atsu Amegashie, also doubted the figures even though he made it clear that it was based on nothing else but his gut feeling.

‘My gut feeling is that the 5% rate of inflation for food over the twelve-month period between July 2013 and July 2014 is too low. But this is only my gut feeling because I have not collected any data on food prices. The GSS must be commended for making its data publicly available.

Otherwise, I could not have written this article. Kudos to the GSS! In the interest of more transparency, it should also upload a spreadsheet of the actual prices used in computing the CPI for a given month and make this data publicly available for X months (e.g., 3 months).

Alternatively, it could do this for only the items in the food group, which has only 76 items. Therefore, as argued above, whether one believes the GSS’ figures depends on the answer to the following question: ‘is it credible that between July 2013 and July 2014, the cost (price) of food increased by only 5%.’? I will give the GSS the benefit of the doubt while urging it, as suggested above, to make the prices used in computing the CPI publicly available.’, he stated.

Source: The New Crusading Guide

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