CPD for new CPI making inflation estimate more practical

A leading think-tank of the country has suggested developing a new consumption basket for making the inflation estimation more realistic and set the monetary target appropriate.
"A new consumption basket should be formulated for calculating Consumer Price Index (CPI) inflation, based on rigorous research as regards consumer behaviour and expenditure patterns," said the Centre for Policy Dialogue (CPD).
"All targets, projections, and plans in the monetary policy and the 8th Five Year Plan should be revised in accordance with this new consumption basket for CPI and new base year for inflation," it further added.
CPD made the suggestions on Tuesday morning at a virtual media briefing to give its reaction to the annual monetary policy statement (MPS). Bangladesh Bank announced the MPS last week.
In the briefing, a paper titled 'CPD's Reaction on MPS FY2021-22: To what extent monetary policy meets the needs of the economy' was presented."Inflation targets should be practical, based on updated consumption basket," opined the CPD paper.
"Calculating CPI on a base year and consumption basket which is 16 years old appears to be na�ve at best and manipulative at worst," adds CPD. The think-tank also expressed concern on the authenticity of inflation and other macroeconomic data.
"Unfortunately, lack of data integrity in recent years has seriously compromised the effectiveness of the government's policies and the central bank's directives, thus jeopardising the overall economic progress of the country," said CPD.
The think-tank pointed out that even the middle-class struggle to make ends meet, it seems unlikely that long-term inflation is declining.
"It is apprehended that actual inflation may likely be significantly higher than the reported values," observed CPD.
In this connection, it also mentioned that inflation during pandemic slightly exceeded the monetary policy targets set in FY20 and FY21, 'due to a host of factors such as sporadic shutdowns and lockdowns.'
"Prior to the pandemic years, inflation targets were met in FY15, FY16, FY17, and FY19, although in reality, the cost of living kept rising," it observed. MPS of FY22 sets an inflation target of 5.3 per cent.
"Data shows that the 12-month average food and non-food inflation rates have fluctuated in a cyclical pattern over the past several years," said the CPD paper. "However, it appears that the inflation rate has lost its relevance to the real world," added CPD.
 "The poor and low-income groups are increasingly finding it difficult to make ends meet in the face of dual blows from purchasing power erosion and income erosion," it continued.