Every month, the central bank Dominican Republic (BCRD) discloses the behavior of the inflation, which is measured through the consumer price index (CPI). How is it calculated? Why is there mistrust in part of the population? How reliable is the data? The director of Communications of the monetary policy institution, Luis Martín Gómez, interviewed Elina Rosariodirector of the Department of National Accounts and Economic Statistics (Cuneco), who offers details of all the steps that are exhausted during the process of capture, validation, analysis and publication of results.
The first thing to do is define what inflation is. Explain what is a indicator quite important for decision-making, so he considers that it is valid to start by defining what inflation is.
In a simple way, it means that it is an indicator that reflects the price change in an economy during a given period, according to a basket of goods and services, which is habitually consumed by a Dominican family.
“Basically, part of what this family consumes in greater frequency and amount to meet your everyday needs. In simple words: inflation allows us to quantify how prices have varied in the economy and, consequently, if more or less is required resources to buy the goods and services that meet the needs of this family over a given period,” he explains.
Faced with the question:Where does that number come from? that the Central Bank, through the Department you direct, publishes every month? It indicates that the Central Bank, as the institution responsible for compiling and estimating the consumer’s price index (IPC), in the first instance builds what is known as the family basket, which is made up of a representative group of articlesboth goods and services, that households consume on a regular basis.
After building the basket, he comments, its cost is estimated by collecting prices through the National Consumer Price Survey (ENPC) applied in 11,168 establishments Selected commercials throughout the national territory.
It refers that these indicated establishments are distributed in 79 districts municipal. Each month an average sample of 193,000 is reached quotes of prices, which makes this indicator robust enough.
According to Rosario, once this information by a specialized group of surveyors who are in the field, a highly trained plant personnel processes this information carrying out a process thorough validation, since it is important that what is collected in the field, when it is received in Cuneco, is duly validated and then these data are converted into a weighted average index.
Once these results are obtained, he points out, inflation is nothing more than the variation percentage of that consumer price index.
It emphasizes that the CPI can be obtained or seen from a monthly optical, that is, what happens in a month compared to the previous month; quarterly or annually, which is to compare what has happened in a year with respect to the immediately previous year. He points out that it has different ways of being analyzed and it will depend on the utility that the analyst, user or agent economical that is interpreting it.
“It is very important to highlight that the system used in Dominican Republicto calculate the CPI, is based on the manual prepared by international organizations specialized in the matter, in this case the current one was prepared by the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), the world Bank (BM) and the Statistical Office of the European Communities (OECE), among other institutions. What this means, he maintains, is that the CPI calculation is reliable and, furthermore, it incorporates existing advances and improvements to obtain the most accurate results and that are comparable with other countries.
Referring to the concept of family basketwhich is often used by media and the public, explains that it is nothing more than the set of goods and services that families acquire. He explains that this information is segmented according to the classification of individual consumption by finalized of the United Nations, which facilitates international comparability.
The director of Cuneco details that from this classifier are derived 12 groups of goods and services: food and non-alcoholic beverages; alcoholic beverages and tobacco; clothing and footwear; living place; furniture and household items; health, transport, communications, recreation and culture; education, restaurants and hotels; and, finally, various goods and services.
He argues that within each of these groups there is a number of items that represents the diversity of household consumption in the products that belong to each of these classifications. Indicates that the composition of this basket, which is the basis of the information, is obtained through the National Survey of Household Expenditure and Income (ENGIH), which is usually carried out every ten years in the countries.
“It is the recommendation and practice usual. This allows knowing the distribution of household spending, in this case the Dominican, and the last version that was raised, by the Central Bank, was in the year 2018. This is the base information that allowed the construction of this family basket that sustains the consumer price index”, he explains.
In regards to the effects Regarding inflation in people and companies, Rosario points out that when talking about high inflation “we are talking about the price level in the economy having increased”. before a situation like this, he says, if the level of income is maintained stable or the same will automatically produce a reduction in purchasing power.
It means, he says, that with the same amount of money generated by a citizen will have the ability to purchase fewer products today than in the past, “since I have the same level of income, but prices have increased.” Therefore, it stands out, in the face of an unstable price level, the consumers and companies will not be able to clearly identify price variations, which will make it difficult to make adequate decisions between consuming and savefor consumers, or between hiring and investing, in the case of companies.
Another effect of very high inflation, according to Rosario, is that it raises the uncertainty level, which can discourage productive investment. He states that this automatically generates a lower level of investment that slows down the growth which tends to generate unemployment, which deteriorates wages and deepens social imbalances.
And if the opposite happens, if inflation is zero or negative? Rosario explains it as follows: “Zero or negative inflation is not convenient. The economic literature studies or has extensively studied these effects and the truth is that a zero inflation or negative for a sustained period. On the contrary, he points out, the theory is in favor of low, stable and predictable inflation.
In this sense, it indicates that a scenario is considered in which a person has to invest or buy a specific good, imagining that they are in a situation of negative inflation, that is to say, that the trajectory of the prices goes downwards, what that consumer will decide is to wait for it to fall further. This, he says, has an effect on companies or producers. He says that if everyone were to act in the same way, companies will be affected by the decrease in their sales and, consequently, in the income they generate, which could lead them to make decisions with the staff, whether it is laying them off or not hiring more. This, he assures him, would translate into an increase in the unemployment and lower prices.
In summary, it stands out, the drop Prolonged price growth can become a vicious cycle that negatively affects the economy and causes a slowdown.
And why is inflation in Greater Santo Domingo different from that registered in flints? Rosario responds that this is a question that the Central Bank receives repeatedly. When explaining why it happens, the official says that it is necessary to understand what the price level is and the price variation. He says it because he supposes that the doubt arises because sometimes different price levels are seen. He expresses that it is natural that the goods produced in a region are different from those that are commercialized in another place, as is the case of Santo Domingo.
It refers that if an item is produced in a province (outside the capital), when they transfer it to Santo Domingo, which already has the factor of profit margins incorporated. transport and commercial, then the price level is different. Now, he says, the variation tends to be different in terms of one locality and another, which will also affect the patterns of consumption of each one of the regions and the income levels of the people.
“This is why the Central Bank presents the CPI information and, in turn, of inflation, segregated in the different regions of the country and monitors prices using a representative basket of each of them so that it really reflects which estate and services are the most frequently purchased in each of these areas, as well as which represent a higher percentage of total consumption”, he details.
As he points out, all these factors ultimately give rise to inflation levels, that is, variation prices that may differ between the four regions in which the national territory is distributed.
And why the figures offered by the Central Bank regarding inflation do not seem to coincide with the prices of the products that are acquired in the supermarkets? He affirms that each person has different consumption patterns. In this order, it stands out when a person spends all their income on clothes, another allocates it to travel and others on meal. There are cases in which citizens dedicate part of their income to savings. “Each of them will perceive inflation in a different way because the goods and services they consume, that is, their personal basket, will vary differently over time,” he says.
He highlighted, by way of example, that people go to the supermarket and look only at the items that are in the establishment, they will not be considering that they are sold outside of these mallsas is the case of the gasoline and other items, which makes it impossible to contemplate that the basket is made up of other types of goods and services that also play a role in the variation in the behavior of inflation.
In the end, Rosario believes, it is important to understand that inflation is made up of a basket that is an average of what all the people in the country consume. In this case, the calculation of the CPI, which takes into account the family basket in all its breadth and variety, despite what a particular person may consume, will yield results that, in the opinion of someone in particular, would be dissimilar or not correspond to reality.