Saturday, February 15, 2014

Reliable measures about inflation

Statistics are always on the spot light , specially when it comes down to key indicators:Poverty, inequality, inflation to mention a few .These social issues, keep the atention of speacilized media, politicians and analists ,every month as a new statistics is published. Statistics provide key information to make the proper decisions.Let take the case of inflation.This is a social tax which generates quite a lot of costs ( missallocation of resources,deterioration of real wages, profits, and it reinforce itself throughout indexation), but there are those who believe it also generates benefits (reduces real public debt, increase tax collection for Government).However, empirical evidence support the fact that costs of high inflation, are more important than its benefits. If there are some benefits , these will arise from moderate inflation , the one which Central Banks usually set as its target for monetary policy. Therefore, whenever there is inflation, it is important to have reliable measures such that it allow both to make the proper decison about it, but also to implemnent the right policies.- Latin america economies ,has made important progress to reduce inflation,implementing responsible fiscal and monetary policy, but it is not equally equivalent its progress in the field to have realiable criteria to measure it. Measuring inflation have two key componentes: The index (Laspeyres Index), and the basket used as a reference for the average consumer. Average consumer, change its consumption path becasue of change in either preferences , incomes or prices.The amount and type of goods include in the reference basquet, have to be up dated from time to time (usually ten years), as long as new products influence consumption pattern.For instance, Cell phones call,gyms attendance,rent of movies, cable TV and the like.If inflation is measured by a consumer basket relevant for the nineties, inflation data will not be worthy for any policy purpose.In the nineties the consumption pattern, was very different to the one today.- The same happens when the index is distorted by the approach used to measure prices. Recently, there have been progress to improve the quality of such measures in Chile ( up dating the consumer basket), and in Argentina(up dating its index calculation methodology). Although, both economies are at different stages of economics performance, it reflect how seriously Latin America economies are working its way to become global partners, as a source of new investment opportunities . These modifications, are on the line to make more reliable the statistics about the economic perfomance, key element for investors evaluations about these investments alternatives.-