Kenya to alter inflation formula

August 14, 2009
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, NAIROBI, Kenya, Aug 14 – The government has said it is collecting data which will be used to come up with the new formula of calculating inflation expected to be published in February next year.

Kenya National Bureau of Statistics (KNBS) Director General Anthony Kilele said on Friday that the information would be used to compare the new Consumer Price Index (CPI) with the one which is being phased out. 

“We will be collecting data from all the 24 centres across the country. We know where to go for the identification of products and you have to train people on how to identify a product,” he explained of the towns where consumer prices will be collected from.

The country has been using the arithmetic means, which focuses on a fixed basket of goods and services consumed by households to calculate the CPI. This method has however been criticised as being vulnerable to erratic price movements in the market.

Such movements mostly affect people in the lower income groups particularly in Nairobi where findings of the 2005/2006 Kenya Integrated Household Budget survey estimated this segment constitutes about 72.1 percent of the province’s population.

But with the implementation of the proposed formula, the country will move to the geometric method in conformity with the International Labour Organisation CPI manual of 2004.

“Thus with the new method, we will be giving figures that will be a true reflection of what the consumer price is,” Mr Kilele said of inflation targets which will be lower compared to indices calculated through arithmetic means.

New items such as fresh milk; arrow roots and pork meat will now be included in the new basket bringing the number of commodities to 234 products from the initial 216.

Mr Kilele said there was need for the bureau, the Central Bank of Kenya and other stakeholders to harmonise their computation of the underlying inflation, which excludes food items.

“2010, we will just have one CPI. We want to agree with Central Bank and everybody that this is the methodology we are using, we are all comfortable it can stand the test of time and we should be producing one figure that everybody is happy about,” he added.

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