Bolivian Economics 101: Low inflation in 2015

Armando Mendez writes in El Diario:

Low inflation in 2015

Armando MendezWithout doubt, a remarkable fact of the behavior of the Bolivian economy during year 2015 was the low rate of inflation, measured by the Consumer Price Index (CPI), published monthly by the National Statistics Institute.

The year ended with an annual rate of 3%, while in the previous two years, inflation was much higher; it closed with 5.2 in 2014 and 6.5% in 2013. Clearly a favorable downward trend. However, it is noteworthy that it is not the lowest in so far taken during the XXI Century. 2001 had a rate of 1% to almost zero in 2009 (0.3%) were reported.

Inflation is a phenomenon of continued concern, not only in Bolivia but also in Latin America. The continent is characterized by having a historical behavior of high inflation rates compared to other world regions.

Although the inflation rate is lower than 2015, when people are asked for their opinion on this indicator, they believe that it is not credible that things have risen in price much more than this indicator points. The explanation for this perception requires clarification of what the IPC; its calculation, its coverage is broad and measured every ten days, noting that what it quantifies, ultimately, is an average.

The coverage that the IPC has in Bolivia is comprehensive, covering ten major cities and the average indicator for each is different. For example, by 2015 the highest rate introduced La Paz with 4.6% and the lowest, even negative, Pando introduced with -0.5%.

A GREAT VARIATION

Additionally, it is noteworthy that the basket of goods, whose price behavior is measured, is in the order of 360 goods and services, grouped them into 12 groups in order of importance (weights) are: food, transportation, restaurants and hotels, housing, household, different, clothing, recreation, education, communications, health and spirits. The importance of each of these sets of goods and services is derived from statistical calculations usually done, from time to time, by the INE, in order to know what is the importance of each of the 360 goods in families, giving as a result averages, they are grouped into 12 groups already mentioned. For example, at the national level and by 2015 the group showing the fastest growing was health with 6.2% and the lowest is recreation with only 0.6%. A large variation.

These pooled datam already denote a great variability in the behavior of prices, which is more remarkable when analyzed within each of the items. For example, if one considers, 2015, the case of La Paz, the food group that includes 88 elements, has an annual performance that moves in a range of variation from a growth of 25%, which It corresponds to different bread to a negative change that reaches 40%, corresponding to papaya.

Of the 88 registered goods and services, 47 were expanded in prices, the latter with a 0.1% annual corresponds to chicken pieces, while five others are: orange, banana, candies, parsley and cocoa They had no variation. That is zero percent. The rest (36 goods and services) decreased the average price in December in relation to the average price in December of last year in a range of negative 0.1 percent to the already mentioned 40%.

What is involved indicated that people have different perceptions of inflation based on goods and services purchased, if the most rise in price, its conclusion will be that inflation is much higher than indicated by the INE .

According to the INE’s food inflation rate heading for La Paz it is 5.9%, which is a weighted average much higher if one considers the simple average would give a score of only 0.6%. A huge difference. And this is because between foods that do not have the same financial burden upon families at the time they allocate their income, and this is what measures the INE by its weighted average rather than a simple average.

But this phenomenon that stands for the month of last December is not the exception but the rule. If you look over time it can be noted that annual variations between maximum and minimum are enormous not only if you take into account for each year-end rate, but for any month of the year, measured annually. In the period 2010 to 2014 you have goods or services that have an annual expansion to more than 100% and others a decrease of 50%. Of course that is not the same products.

Therefore, the problem is not the indicator of INE, is not to improve its methodology, new goods and service add or remove others. This does not change the fundamental fact which indicates that the issue price of the basket in the country lies in their large variability. So while certain products enormity grow annually at a time, in another rush to fall.

The author is Professor Emeritus of the UMSA, he was President of the Central Bank of Bolivia.

http://www.eldiario.net/noticias/2016/2016_01/nt160120/opinion.php?n=19&-la-baja-inflacion-del-anio-2015

Great analysis over what so many people argue, critic and have an opinion, all of them should read this very carefully!

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