STATISTICS SA (Stats SA) is reassessing the weighting given for rentals in consumer inflation data, which may help to cut inflation when the new information is included in the May figures.
Economists said the Reserve Bank's targeted inflation measure, CPIX (consumer inflation less mortgages), may be overstated by almost 2% as a result of the outdated information used for rentals.
Deputy director-general of Stats SA, Ross Hirschowitz, said it was completing an investigation into rentals from information gathered from banks and rental companies to reassess the weightings rentals have in the CPIX basket. "We are checking to make sure that we are using the right weights for rents in the CPIX as it should be.
"If we find the weighting needs to be adjusted, then we will make the changes," said Hirschowitz.
CPIX would then be adjusted in line with any changes to the weightings.
Stats SA was prompted to take another look at the weighting for rents after receiving queries from the public, Hirschowitz said.
The new information will be included in May's consumer inflation data, which will be released next month.
Stats SA adds an annual increase of 34,5% for rentals, based on the increase recorded in a household survey done in 1999, and which is redone every five years. It assumes that on an annual basis, rents for houses increase by 2,3%, flats rise by 3% and townhouses almost double, rising by 94%.
On a monthly basis, this means a 2,5% increase in rents in CPIX.
However, over time the contribution that rentals have made to CPIX has increased because of the effects of compounding.
Merrill Lynch economist Nazmeera Moolla said in a research note yesterday that housing costs comprised about 9% of CPIX, compared with the 4,76% base weight of mid-2000.
Housing was now the biggest contributor to inflation, outstripping categories such as food and transport.
Without housing, March CPIX would have increased by 9,3% year-on-year compared with 11,2%. Moolla estimated that rentals were adding as much as 0,23% to CPIX each month.
If the revised information from Stats SA puts rental increases at about 10% a year, rather than 34,5%, inflation may be 1,87% lower within a year than it would be if there are no changes to the rent survey, according to Moolla.
With the Bank forecasting CPIX to average 5,7% next year and a market consensus of 5,3%, a drop in inflation because of lower annual increases in rents would further reduce CPIX, putting it comfortably within the 3% to 6% target range. Moolla said she was "convinced" interest rates would be cut at the Bank's monetary policy committee meeting next month.
"Real interest rates should always be calculated by looking at inflation still to come, not historical inflation. Seen in this light, real rates are absurdly high," said Moolla.
Investec Asset Management's portfolio manager, John Stopford, was the first to point out the anomaly in the measurement of rent in CPIX in a Business Day article two weeks ago.
He said at the time that CPIX was probably overstated because it was not being properly measured.
May 07 2003 06:54:56:000AM Nasreen Seria Business Day 1st Edition
Publisher: Business Day
Source: Nasreen Seria
Rentals weighting may have distorted inflation details.
Posted On Wednesday, 07 May 2003 02:00 Published by eProperty News
If the revised information from Statistics SA puts the fee increases at about 10% a year, rather than 34,5%, the figure may be 1,87% lower within a year.
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