The Presentation is about how Consumer Price Index (CPI) is calculated & formulated in Pakistan. The three formulas being used in Pakistan CPI, SPI & WPI are being used to calculate the Inflation Rate.

2. Consumer Price Index Presenters Hafiz Islam CEP-FALL10-005 Faisal Basra E/M SPR10 – 060 Haris Jameel E/M FALL10-006

6. WHOLE SALE PRICE INDEX (WPI) Wholesale price index ( WPI) is designed to measure the change of price in the primary and wholesale markets.

8. The CPI is the most widely used measure of inflation and is sometimes viewed as an indicator of the effectiveness of government economic policy. It provides information about price changes in the Nation's economy to government, business, labor, and private citizens and is used by them as a guide to making economic decisions. In addition, the President, Congress, and the Federal Reserve Board use trends in the CPI to aid in formulating fiscal and monetary policies. Function of CPI

10. The Consumer price index was computed for the first time with 1948-49 as a base for industrial workers in the cities of Lahore, Karachi and Sialkot only. Continuous efforts have been made, since then, to make CPI more representatives by improving and expanding its scope and coverage in terms of items, category of employees, cities and markets. Accordingly, the CPI series were computed with 1959-60, 1969-70, 1975-76, 1980-81 and 1990-91 as base years. A History of Inflation in Pakistan with reference to CPI

12. Weights for CPI The results of Family Budget Survey provide the average percentage expenditure(Consumption pattern) of Households on each item/each commodity group and for each income group for the cities covered in CPI. These average percentage expenditures on item and commodity groups are called weights and are being used in computation of the CPI. P o x q o W i = ------------- x 100  P o x q o Example: 1. Total Expenditure: Rs. 3000, 2. Expenditure on Wheat Flour:- Rs. 100 3. % of Expenditure on Wheat flour = (100/3000)*100 = 3.33 Weight of Wheat flour = 3.33%

15. COVERAGE OF CITIES AND MARKETS IN BASE YEAR FOR CPI 2000-2001 Name of City No of Markets Name of City No of Markets Punjab 1. Islamabad (Federal Capital Area) * 04 10. Jhang 01 2. Rawalpindi * 06 11. Okara 01 3. Lahore * 07 12. D. G. Khan 01 4. Gujranwala * 01 13. Bahawalpur * 01 5. Faisalabad * 02 14. Bahawalnagar 01 6. Multan * 03 15. Mianwali 01 7. Jhelum 01 16. Vehari 01 8. Sialkot * 01 17. Attock 01 9. Sargodha * 01 18. Samundari 01

16. COVERAGE OF CITIES AND MARKETS IN BASE YEAR FOR CPI 2000-2001 Name of City No of Markets Name of City No of Markets Sindh N.W.F.P. 19. Karachi * 13 27. Peshawar * 03 20. Hyderabad * 04 28. Mardan 01 21. Sukkur * 02 29. Abbottabad 01 22. Nawabshah 01 30. D. I. Khan 01 23. Larkana * 01 31. Bannu * 01 24. Mirpurkhas 01 Balochistan 25. Shahdadpur 01 32. Quetta * 02 26. Kunri 01 33. Khuzdar * 01 34. Turbat 01 35. Loralai 01 Total Cities = 35 Total Markets = 71

18. Time table for Collection of Prices Part-I Food, Beverages Tobacco Monthly 11-14 of each month Part-II Apparel, Textile and Foot Wear Fuel and Lighting Monthly 01-03 of each month Part-III House Hold, Furniture & Equipment Transport & Communication Monthly 04-06 of each month Part-IV Recreation, Entertainment & Education, Cleaning, Laundry & Personal Appearance & Medicines Monthly 07-10 of each month Part- VII Whole sale price Monthly 13-15 of each month Part-VI S.P.I Weekly Each Thursday Daily Prices of 18 items Daily Daily

19. FORMULA USED FOR COMPUTATION OF CPI Laspeyre's formula as given below is being used for the computation of CPI.  (Pn/Po) x wi In = --------------------- x 100  wi Where In = CPI for the nth period Pn = price of an item in the in the nth period Po = price of an item in the base period wi = weight of the ith item in the base period = Po x qo /  Po x Qo  wi = Total weight of all items.

20. EXAMPLE FOR COMPUTATION OF CPI  ( P n /P o ) x W i Index = -------------------------------- x 100  W i 1.3246 I = -------------------------- x 100 = 123.41 1.0733 ITEM UNIT BASE PRICE (P o ) PRICE IN MAR, 06 (P n ) WEIGHT (W i ) P n / P o P o / P n x W i Moong Pulse Kg 29.91 47.61 0.2230 1.5918 0.3550 Mash Pulse Kg 45.01 52.72 0.2017 1.1713 0.2363 Masoor Pulse Kg 36.23 44.03 0.2214 1.2153 0.2691 Gram Pulse Kg 28.99 31.50 0.4272 1.0866 0.4642 1.0733 1.3246

21. Inflation Rate Definition In mainstream economics, the word “inflation” refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances.

22. Inflation Rate in % Year Inflation rate (consumer prices) (%) 2000 6 2001 5.2 2002 4 2003 3.9 2004 2.9 2005 4.8 2006 9.1 2007 7.9 2008 7.6 2009 20.3

25. Conclusion Inflation is one of the obstacles on the way of development. In Pakistan, it has squeezed the major part of the population. It needs to be controlled by strategic planning. Domestic production should be encouraged instead of imports; investment should be given preference in consumer goods instead of luxuries, Agriculture sector should be given subsidies, foreign investment should be attracted, and developed countries should be requested for financial and managerial assistance. And lastly a strong monitoring system should be established on different levels in order to have a sound evaluation of the process at every stage.