A Closer Look of Consumer Price Index (CPI) for Puntland State of Somalia

[Deeq A.]

Consumer price indices are important to the development of a country.  The Puntland State of Somalia (PLS), a regional administration which is a member state of the Somalia Federal Government (FGS) has developed a monthly Consumer Price Index (CPI).  The CPI is published by the Ministry of Planning and International Cooperation (MoPIC), Department of Statistics for Puntland.

As noted in MoPIC’s website, “CPI is obtained by comparing through time, the cost of a fixed basket of commodities purchased by consumers.”  The Consumer Price Index (CPI) October 2019 was recently published by the Department and it shows the changes for various components of the CPI, as depicted in the following chart:

Chart 1: Change in the Price Indices for October 2019 for Puntland

As shown in Figure 1, for the month of October 2019, overall, the CPI was up 0.2 percent compared to 0.8 percent for the month of September. The monthly change, which is a measure of inflation, appears to be stable from month to month.

Major contributors of the increase from September to October were:

Recreation and Culture with an increase of 3.8%, followed by Communication (+3.6%), Education (+2.6%), Alcoholic Beverages, Tobacco & Narcotics (+1.9%), Health (+0.8%) and Food and Non-Alcoholic Beverages (+0.5%).

In addition, major areas of decrease for the same period were:

Transportation and Restaurants and Hotels which had the largest decrease of 1.3%, followed by Housing, Water, Electricity and Gas (-0.6%) and Clothing and Footwear (-0.3%), which as noted by PL MoPIC, led to a muted and flat result at the All Groups CPI level.

Chart 2: All Groups CPI – Combination inflation rate and index graph

Chart 2 illustrates year-over-year the inflation rate (left axis) and all group CPI (right axis).  Puntland appears to be experiencing increased inflation rates in 2019 compared with prior years of 2018 and 2017 as shown in the Figure 2.  For example, the yearly inflation rate for October 2019 was an increase of 14.1 percent (74.1 in October 2018 and 84.6 in October 2019) compared with a decrease of 15.2 percent in October 2018.  This is a great cause for concern and inflation rate at this rate is unsustainable, in the long run. While a regional state such as PL with meager resources and nascent economy might not have inflationary rate policy, a symmetric 2 percent objective is generally a good rate to maintain for a healthy economy.

As noted in MoPIC October Report, major contributors of significant prices increase were:

Clothing and Footwear which experienced a hefty increase of 24.2% followed by Transportation (+20.7%), Alcoholic Beverages, Tobacco & Narcotics (+18.6%), Health (+18.0%), Housing, Water, Electricity & Gas (+17.1%) and Food and Non-Alcoholic Beverages (+12.8%).

As is done in other CPIs, the Puntland CPI can be measured by excluding often volatile food and energy categories. Nonetheless, Puntland’s CPI report showed people in that region paid more for items such as clothing, footwear, transportation and non-discretionary items. The increase in transportation could be influenced by the importation of fuel and other lubricants.

Chart 3: CPI Index for Somalia

Compared with overall Somalia (as depicted at chart 3), the inflation of Puntland appears to be heightened. For example, the Somali inflation was reported to be (over the twelve months to the month of October 2019) as a decrease of 4.15 percent.  Again, this could be due transitional measurement unique to PL and not any structural issues.  Similar to the PL CPI, the most significant monthly price increases for the Somali CPI were Transport which had increased 2.11%) from October 2018 to October 201.

Having government indices such as the CPI is a great step in the development parameters of any state, regional or federal level, and would contribute to the overall development of Somali in rebuilding its financial institutions.

Abdighani H. Hirad is an economist and statistician, a member of American Statistical Association and Southern Economic Association.

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