The Sunday Leader

Price Controls Can’t Control Prices

  • Laments National Movement For Consumer Rights Protection

(Contd. from last week)

by Amavasya Sirisena

Today, consumer prices are skyrocketing and rising in an unbelievable manner according to the whims and fancies of the importers, manufacturers and the traders passing on an unbearable burden to the consumers who have no voice but have to humbly accept the behest of the merchant class. It seems that controlling of prices of essential goods is under the authority of those traders and manufacturers associated with importing and selling consumer goods rather than the policymakers and the government of the country.

National Movement for Consumer Rights Protection (NMCRP) Chairman Ranjith Vithanage stated that reasons behind the increasing of the prices of essential goods are the increasing of the Value Added Tax (VAT) which is an indirect tax. He further stated that according to the 2002 act, VAT tax was excluded from the wholesale and retail trade. “The unawareness of the society on the accumulation of VAT tax on these essential goods makes the traders sell those goods at different prices according to their own will,” he added exemplifying the reason for the increasing of goods due to the VAT.

Further he stated that, “the two gazettes issued by the 100-day government on  February 20, 2015 and  November 24, 2015 respectively indicate the maximum retail prices of essential goods.” According to Vithanage even though there are maximum retail prices that have been already passed by the gazette, still there is no proper mechanism for controlling the prices of those goods.

Vithanage further claimed that the Director General of the Consumer Affairs Authority recently accepted that the prices of essential goods like sugar and dhal cannot be controlled due to the fluctuating value of the dollar in Sri Lanka. According to him, the director general has stated that the controlling of prices of essential goods is not practical because of the increasing value of the dollar and therefore, the controlled prices that have been gazetted in the above-mentioned two gazettes cannot be implemented. Vithanage stressed that the Consumer Affairs Authority has now stopped all the investigations related to the issue of controlling prices.

Explaining for the reasons behind the soaring prices of essential goods, he opined that there is no need of a government if the prices of essential goods are decided based on the supply and demand. Further he pinpointed that, “in my opinion, there is no need of issuing such gazettes, if the authorities are incapable of implementing such rules and regulations even after issuing a gazette. If they are unable to implement the law they should remove it from the gazette or else, they should increase the stated rates.”

Last week The Sunday Leader highlighted concerns raised by consumer rights activist, Arjuna Seneviratne who insisted that prices of goods cannot be reduced if manufacturing and energy costs cannot be controlled or reduced.

 

Colombo Consumers’ Price Index (CCPI)

The CCPI (2006/07=100) which measures the general price level of consumer goods and services purchased in the Colombo urban areas, exhibited an overall increasing trend with mixed movements during 2015. The CCPI increased from 183.2 index points in January 2015 to 185.2 index points in December 2015, due to the increasing trend in fresh food prices which continued from the fourth quarter of 2014. During 2015, price movements of the Food category were inflationary, while that of the Nonfood category were non-inflationary as reflected in the movement of year-on-year change in CCPI. Year on-year change in CCPI declined to reach negative levels during July to September 2015. Meanwhile, the annual average change in CCPI declined throughout the year while remaining below mid-single digit levels.

 

Inflation

The CCPI is an economic indicator constructed to measure inflation which is defined as percentage change in CCPI over the year. There are two measures of inflation in general use. One measure is Year on Year base or Point to Point inflation (The percentage change in the CPI during the last 12 months). The other measure is Moving Average Inflation (The percentage difference between the average Price Index of last 12 months & the average Price Index of previous 12 months).

The YoY inflation as measured by CCPI is 4.8% in May 2016 and inflation calculated for April 2016 was 3.1%. YoY inflation of Food Group has increased from 4.9% in April 2016 to 5.6% in May 2016 while Nonfood Group increased by 1.7% to 4.2% during this period.

Contribution to Y on Y inflation for the month of May 2016, on year to year basis, contribution to inflation by food commodities was 2.68%. The contribution of Nonfood items was 2.19%. This was mainly due to value change increases in groups of ‘clothing and footwear’ (0.29%), ‘furnishing HH equipment’s & routine HH maintenance’ (0.11%), ‘health’ (0.69%), ‘transport’ (0.46%), ‘communication’ (0.41%), ‘recreation and culture’ (0.10%), ‘education’ (0.23%), ‘miscellaneous goods and services’ (0.07%) while decrease in value change reported in the group of ‘housing, water, electricity, gas & other fuels’ (0.15%). The moving average inflation rate for the month of May 2016 was1.7%. The corresponding rate for the month of April 2016 was 1.3%.

Inflation, based on CCPI (2006/07=100), remained below mid-single digit levels, supported by the downward adjustment of prices of several key consumer items, favourable supply side developments in the domestic and international markets, and well contained inflation expectations.

Headline inflation, as measured by the year-on-year change of CCPI, declined sharply from 3.2 per cent in January 2015 to 0.6 per cent in February 2015, with the price revisions introduced in the Interim Budget for 2015. Year-on-year Inflation remained below 1 per cent thereafter until September 2015, while recording negative inflation during July- September 2015. Inflation picked up in the fourth quarter of 2015, and recorded 2.8 per cent increase by end 2015. Annual average headline inflation declined from 3.3 per cent in 2014 to 0.9 per cent in 2015. Signaling the gradual buildup of demand pressures in the economy, CCPI based year-on-year core inflation increased to 4.5 per cent by end 2015 from 3.2 per cent at end 2014, although core inflation in terms of the annual average declined from 3.5 per cent in 2014 to 3.1 per cent in 2015.

Meanwhile, in 2015, the DCS introduced the National Consumer Price Index (NCPI, 2013=100), which captures price movements of all provinces and changes in consumption patterns based on the findings of the Household Income and Expenditure Survey (HIES, 2012/13). Inflation based on NCPI was at 4.2 per cent on a year-on-year basis and 3.8 per cent on an annual average basis by end 2015. Wage inflation was particularly high in the public sector, as reflected by the change in the public sector wage rate indices, which registered 31.7 per cent in nominal terms and 27.0 per cent in real terms in 2015.

 

Household Income

The mean (average) and median household income is the prime statistics used to compare income values reported in different domains over time. Mean household income is the value obtained by dividing the total aggregated household income by total number of households in a domain or in an area. Median income is the income value at which the income distribution is divided into two equal size groups.

This middle point or the median is important as always the income of one half of the population falls either above or below that value and the median household income is a better indicator than the mean (average) household income as the median is not dramatically affected by extreme or unusually high or low values. However, both the mean and median are based on all the households in the population.

The Household Income and Expenditure Survey 2012/13 results revealed that the mean monthly household income in Sri Lanka was Rs. 45,878 in 2012/13. Considering the average monthly household income among three sectors, the value of rural sector indicates closer mean value (Rs. 41,478) to the national value. That value of the households, those who are in urban sector is about Rs. 69,880 greater than the national figure. But the relevant figure for estate sector is remarkably less than all island figures amounting about Rs 30,220.

When the provinces are compared, the Western province which reported the highest household income level is more than two times higher than the values reported by the Eastern province which reported the lowest values for both the median and the mean income.

Considering the district figures, Colombo district has indicated the highest monthly household income for both mean and median measurements. (Rs. 77,723 for mean and Rs. 50,071 for median respectively) The median value indicates that out of the total household in Colombo district, half of them receive more than Rs. 50,071 per month and the other half get less than that amount during the period under review. Accordingly, for all other districts, same interpretation can be made by reading the particular median values.

In every district the mean or the average household income falls beyond the median income, resulting positively skewed distributions which is a common phenomenon in almost all the income distribution. The decile groups are easy to understand about an income distribution, particularly the inequality of the distribution. The boundary values of the decile groups break a distribution into 10 equal size groups. The first decile holds the 10 percent of the total population which contain the lowest values of the distribution are attributed to. So to obtain the range values of the household income deciles, all the households are arranged in ascending order according to the income and divided into 10 equal sized groups.

 

Household per capita income

Household per capita income is frequently used as a better indicator to understand and compare the country’s standard of living over time. However, the per-capita income varies, in reverse to the household income with the household size. Lower household size shows the higher per-capita income. Per capita income in a domain is calculated by dividing the estimated total household income by the estimated number of household population in the domain and is also used to measure and compare the wealth status of domains.

 

Source of income

Income is received in two main ways, as in monetary or non monetary. Income from wages and salaries, agricultural activities (seasonal and non seasonal crops), non agricultural activities, and other cash income (which includes pension payments, disability payments, Samurdi, local and foreign transfers), Income by chance/ad-hoc gain (windfall income) such as lottery wins, compensations etc.) are identified as monetary income. The non monetary income is the estimated value of goods and services received in kind and consumed within the survey reference period. Estimated rental value of owner occupied housing units or freely occupied housing units are included under non monetary in-come. Out of the total household income around 86 percent of the income is received as monetary income in 2012/13 and 2009/10. As usual major part of the monetary income is recorded from wages.

 

Income receivers’ income

In order to obtain the income receivers income, the HIES records the household income, received from all the sources, by source and person. The income receivers’ income is the sum of the income values recorded in each income section arranged according to the income source in the survey questionnaire.

If a person is less than 10 years old or aggregated total monthly income is less than Rs. 250, then he was not defined as an income receiver by the HIES 2012/13 and such income values were added to the income of the heads of the respective households.

It is obvious that the household income is so built on the income of the income receivers in the household and thus the total household income of the country is equal to the sum of the income values recorded by the total income receivers at all of the source sections of the survey questionnaire. The analysis of the income receivers reports that the average monthly income receivers mean income and median income were Rs. 25,963 and Rs. 16,667 in 2012/13 respectively.

 

Inequality of household income

The simplest but a popular way to understand the income inequalities is dividing the population into income quintiles and analyzing the proportions of income calculated at each quintile from poorest to richest.

A national household income quintile represents 20% or one fifth of the total households in Sri Lanka. The highest or the fifth quintile holds the richest 20% households whereas the first is for the poorest 20%. Middle income group consist of the households, which belong to second, third and fourth quintiles.

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