Issues in the measurement and construction of the consumer price index in Pakistan

The Consumer Price Index (CPI) is one of the most important measures used in economic analysis. The more common uses are: the indexation of wages, rents, contracts and social security payments; the deflation of household consumption in the national accounts; and as a general macroeconomic indicator, especially for inflation targeting and for setting interest rates. Elements of a CPI are also often used in the calculation of purchasing power parities (PPPs) required in the International Comparison Program (ICP) (UN, 2009). As such it also has very significant political implications when the performance of the governments is assessed in terms of real growth, inflation and poverty reduction.
This paper examines the measurement and construction of the Consumer Price Index in Pakistan. With the help of the data from Household Integrated Economic Surveys (HIES) of the Government of Pakistan, and the recently collected data of Rural Household Panel Survey under the Pakistan Strategy Support program, this paper examines identifies some serious issues in the measurement and construction of the CPI in Pakistan. Differences in the consumption patterns and prices faced by rural and urban households not explicitly accounted for in the CPI and the respective weights of different commodity groups used are highlighted as issues for serious concern.

Read more at PSSP Working Paper 020 "Issues in the measurement and construction of the consumer price index in Pakistan"