GSS dismisses Steve Hanke’s methodology for calculating inflation

GSS dismisses Steve Hanke’s methodology for calculating inflation

The Ghana Statistical Service has dismissed Professor Steve Hanke, a US Professor of Economics, Purchasing Power Parity approach in computing inflation, saying, it is not the conventional mode for computing consumer inflation.

According to the GSS, his methodology is not the internationally recognised and accepted standard for computing consumer inflation, adding “a major weakness of the Professor Steve Hanke-Purchasing Power Parity (SH-PPP) approach is the erosion of country specificities.

In a statement, it said globally, measures of Consumer Price Inflation (CPI) and inflation are based on the Consumer Price Index Manual: Concepts and Methods.

This it said should satisfy the conditions including importance of items, disaggregation, exhaustiveness and contextualization.

For instance, it said for contextualization, the GSS approach produces statistics that consider country-specific living arrangements. This accounts for price/quantity adjustments when the use of weighing scales is not predominantly used in the determination of prices and other modes such as ‘olonka’ and baskets are more common.

The GSS added that The Steve Hanke Purchasing Power Parity (SH-PPP) proposition for computing consumer inflation mainly relies on the role of exchange rate, as it is used to equate a country’s local currency and the world’s reserve currency, the U.S. dollar.

Three assumptions that underpin the use of SH-PPP for computing consumer inflation, it added, are countries facing high inflation rates, all goods and services that are important (share of total consumption expenditure) in individual countries are internationally tradeable and comparable as well as the presence, stability, and accuracy of exchange rate data.

The GSS added that Ghana has yielded to the demands for transparency in the production of Consumer Price Index and Inflation, followed scientific and professional standards and ensured country relevance, without compromising international procedures.

This is evidenced by the publication of the technical guidance for the compilation and computation of CPI and Inflation in 2020, which is accessible on its website. This publication uses international standards such as the United Nations’ Classification of Individual Consumption.

Ghana Statistical Service’s approach

The Ghana Statistical Service computes consumer inflation based on the measure of CPI.

The CPI is based on a fixed basket of goods (such as food and clothing) and services (such as repairs and school fees) that are purchased by households.

The basket has 307 items and their corresponding weights (share of expenditures).

Prices are collected on the different brands and service providers of these 307 items leading to approximately 39,500 price quotations collected monthly from 7,726 outlets across the country.