SSA data mess-up caused rate hikes!!!!!!!

DJStealth said:
That has to do with their exposure to the US sub-prime market and a general down turn in financial stocks. Should they not be pointing out a fundamental flaw in such a major economical calculation because their stock dropped a few points? :confused:

Investec pointed out a different issue to StatSA 5 years ago as well which resulted in them changing their calcuations. Had to do with rental figures IIRC...
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And potentially their scam with the pension funds as covered in Noseweek
 
Turiko said:
And potentially their scam with the pension funds as covered in Noseweek
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It wont go very far that. I say this because as far as I know, this hasnt affected their share price yet...
 
The Reserve Bank needs to come clean and state that they are reliant on the figures from SSA. If that is the case would they have upped the repo rate had they a lower inflation number? If not, then I'd suggest that there is a class action suit against SSA for damages - damages here being the amount of interest that we paid unnecessarily.

But it is rather worrying that there hasn't been a statemetn from the Reserve Bank stating that they'll convene an emergency meeting and review the repo rate.
 
Mugabiweni will never lower rates in response to this fsk up. He'll rather hike it just to save face with his intl cummrades...the minister of finance of Zimbabwe, Sudan and Rwanda
 
BTech said:
Mugabiweni will never lower rates in response to this fsk up. He'll rather hike it just to save face with his intl cummrades...the minister of finance of Zimbabwe, Sudan and Rwanda
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It has absolutely Fsckall to do with Mbeki. He cannot influence them at all.
 
Albereth said:
But it is rather worrying that there hasn't been a statemetn from the Reserve Bank stating that they'll convene an emergency meeting and review the repo rate.
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I suspect this new figure is just propaganda, they know it, and the next predicted interest rate hike will go ahead anyway.

Personally I don't know if I agree that they created a 'false inflation bubble' (well, I don't know, but I'm not sure it's a major factor), my own view is that South African inflation is higher than most other countries (in spite of the global factors making it high everywhere right now) because our fundamentals (policies) are mostly comparatively inflationary (i.e. lead to production inefficiencies or other kinds of inflation): non-approach to crime (major factor as it has so many knock-on effects), lack of significant reform and improvements in rail freight (keeping the cost of all goods transport inflated and raising costs of maintaining roads and managing higher truck traffic and the negative effects thereof), minimum wage, blocking the development of new private healthcare facilities, holding back competition in telecomms and banking sectors driving the costs of these up for all businesses, creating taxi "route monopolies" to prevent taxi drivers from having to compete (raising the cost of transport for most of the country's labour force), blocking alternate new public transport infrastructure development like the Soweto monorail, failure to tackle the AIDS problem (driving up healthcare costs, creating a burden of many sick people that the economy must pay for, as well as laborers dying that need to be replaced and new ones trained), failure to manage and maintain the electricity infrastructure (raising costs of all businesses as they have to implement backup systems etc.), and so on and so forth - anything that is an input cost to businesses also results in knock-on effects, and you find these moderately inflationary policies in almost everything government has anything to do with ... take them all together and I think it's these things that all add up.
 
Turtle said:
I suspect this new figure is just propaganda, they know it, and the next predicted interest rate hike will go ahead anyway.

Personally I don't know if I agree that they created a 'false inflation bubble' (well, I don't know, but I'm not sure it's a major factor), my own view is that South African inflation is higher than most other countries (in spite of the global factors making it high everywhere right now) because our fundamentals (policies) are mostly comparatively inflationary (i.e. lead to production inefficiencies or other kinds of inflation): non-approach to crime (major factor as it has so many knock-on effects), lack of significant reform and improvements in rail freight (keeping the cost of all goods transport inflated and raising costs of maintaining roads and managing higher truck traffic and the negative effects thereof), minimum wage, blocking the development of new private healthcare facilities, holding back competition in telecomms and banking sectors driving the costs of these up for all businesses, creating taxi "route monopolies" to prevent taxi drivers from having to compete (raising the cost of transport for most of the country's labour force), blocking alternate new public transport infrastructure development like the Soweto monorail, failure to tackle the AIDS problem (driving up healthcare costs, creating a burden of many sick people that the economy must pay for, as well as laborers dying that need to be replaced and new ones trained), failure to manage and maintain the electricity infrastructure (raising costs of all businesses as they have to implement backup systems etc.), and so on and so forth - anything that is an input cost to businesses also results in knock-on effects, and you find these moderately inflationary policies in almost everything government has anything to do with ... take them all together and I think it's these things that all add up.
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Yip, agree with you there... The ANC communi-.... er government at work :mad:
 
INVESTEC Asset Management has created quite a stir in local debt and money markets. Government bonds rallied in response to its report claiming inflation is overstated by two percentage points, and that local interest rates should be lower than they are now. Money markets also moved to price in a reduced chance that the Reserve Bank will tighten monetary policy again at its next meeting next month.


In an aggressively marketed “media release” based on data published on July 1, Investec Asset Management said Statistics SA (Stats SA) had made a big error in calculating inflation, just as it did five years ago.

Markets reacted immediately, partly because it was the same institution which correctly pointed out in 2003 that official inflation was overstated by 1,9 percentage points, in an error stemming from the way in which rent prices were measured.

But this time around, things are very different. Stats SA has carried out a regular five-year revamp of its consumer price indices in line with international practice and according to a clearly planned and well-publicised schedule. It has gone to great lengths to tell people what it is doing, why it is doing it, and what the implications are — ie that SA’s main inflation rate is likely to be lower when the new indices are published next year.

That is mainly because the weighting for food — which is one of the main factors driving global prices up — will be cut to 16,3% in the basket of goods measured by CPIX from 25,6% now. But there are other factors that could offset this change — the weighting for service prices, which are just starting to climb, will increase to 38,3% from 33,8%.

Also, a significant portion of the new basket of goods comprises products and services which have not been monitored before, such as prices for taxis, restaurants, sporting events and funerals. This means that the annual inflation rates for these items cannot be calculated now — there are no previous prices for comparison.

It is impossible to say with any certainty how much lower SA’s targeted inflation rate will be next year, although many analysts have speculated that it could be up to two percentage points lower. Some analysts said the overall effect would be neutral for inflation, while others predicted it would take even longer for CPIX to fall back inside its official 3%-6% target range. That gauge has breached its target for 14 months running, rising by 10,9% in May, and is expected to climb further this year as new electricity price hikes feed into the economy.

It is rather odd that Investec Asset Management took two weeks longer than anyone else to come to its conclusions. It is even odder that the authors of the report saw fit to ring reporters and pressure them to publish their “explosive” findings immediately. Nobody in SA does that — not the government, the Reserve Bank or Stats SA. The institution does have a point in saying that it takes Stats SA too long to process its five-year survey — the last time, it also took two years. But in that case, why not speak up sooner?

Stats SA took great pains to check and double-check the data because of the big changes in spending patterns which were revealed, especially when it came to food. And in any case, it is the rate of price changes that matters for interest rates, rather than the level.
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http://www.businessday.co.za/Articles/TarkArticle.aspx?ID=3270590
 
Statistics South Africa Won't Revise Inflation Data (Update1)

By Nasreen Seria

July 16 (Bloomberg) -- Statistics South Africa said it won't revise this year's inflation data even if new product weightings in the consumer price index show that the inflation rate may have been overstated.

Revising the data would have implications for contracts, such as wage agreements, which are based on the official inflation data, Rashad Cassim, deputy director-general at agency, said in a phone interview from Pretoria today.

Investec Asset Management, South Africa's second-biggest private money manager, said yesterday the May inflation rate of 10.9 percent is overstated by 2.2 percentage points because the statistics office delayed reweighting product categories in the consumer price index by two years. The office today denied that it delayed the process, adding that updating the index had taken longer than in previous years because it was being cautious.

``We will not revise the inflation data,'' Cassim said. ``We didn't delay the reweighting of the index. We're paying the price for being thorough.''

Bonds surged today on speculation the inflation outlook is better than previously forecast. The yield on the R153 government bond, due 2010, fell 24 basis points, or 0.24 percentage point, to 11.07 percent.

Statistics South Africa said on July 1 it will reduce the weighting of food in the consumer price index, possibly cutting the inflation rate when the changes are applied to the data from January 2009.

Raising Rates

Economists, including Elize Kruger of Thebe Financial Services Ltd. in Johannesburg, said at the time that the adjustments may help to bring inflation back into the 3 percent to 6 percent target range sooner, easing pressure on the central bank to continue raising interest rates.

South Africa's Reserve Bank has increased its benchmark interest rate six times since June last year to curb inflation, which it forecasts will exceed the target until the third quarter of 2010.

At its peak, the inflation rate may be overestimated by as much as 3 percentage points, John Stopford, head of fixed income at Investec Asset Management, said by telephone from London today. Adjustments to the data will probably bring the inflation rate back into the middle of the target range in 2009, increasing the likelihood the central bank will cut interest rates next year.

`Out the Window'

``An August rate increase is out the window,'' Stopford said. ``The Reserve Bank will have to factor in'' the adjustments to the data. ``The scope to cut interest rates is enormous.''

In 2003, Stopford alerted the statistics office to a mistake it was making in measuring rental costs, resulting in an overstating of the inflation rate by 1.9 percentage points. The statistics office revised the data in May 2003 by that magnitude, prompting the central bank to cut interest rates the next month.

The statistics office hasn't made a mistake this time around and doesn't need to revise the data, Patrick Kelly, head of consumer price statistics, said by phone from Pretoria today.

``This is part of a planned process,'' Kelly said. ``The two situations are very different.''

Adjusting weights in the CPI is done every five years, though this time around it will take two additional years because the statistics office took a year to conduct the Income and Expenditure Survey on which the weightings are based, Kelly said. Previously the survey was conducted over a month, he added.

January Deadline

While the statistics office has already published the new weightings of products in the CPI, it will only apply it to the January 2009 inflation data in order to have comparisons with figures from a year ago, Kelly said.

Not all economists believe that the adjustments to the consumer price index will necessarily impact on monetary policy decisions.

Peter Attard Montalto of Lehman Brothers in London said that while the reweighting of the CPI will lower the inflation rate by about 1 percentage point in the first half of 2009, rising wages and ``second-round'' impacts of higher food and gasoline costs will keep the inflation rate above the target until 2011.

While the Reserve Bank will ``take the adjustments to the data into account,'' generalized price pressures in the economy will probably increase, meaning ``they have no choice but to hike interest rates, given their mandate,'' Montalto said in a phone interview today.
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Bloomberg
 
People are saying this did not cause a false "inflation bubble".
From where I sit, it did.
Just one such area - public service salary increases - a major cost to government, was based on this.
 
Moederloos said:
People are saying this did not cause a false "inflation bubble".
From where I sit, it did.
Just one such area - public service salary increases - a major cost to government, was based on this.
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I agree with you that it would have had an upward effect on inflation. But from a technical point of view, if you don't review your CPI basket annually, there is always an element of "inflation bubble" caused by the calculation being "incorrect".
 
milomak said:
I agree with you that it would have had an upward effect on inflation. But from a technical point of view, if you don't review your CPI basket annually, there is always an element of "inflation bubble" caused by the calculation being "incorrect".
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Not so sure I agree - but I am no economist.
It is possible the new basket has no difference.
It is possible the new basket has a "higher" rating.
It is possible the new basket has a "lower" rating.

And for the last two, there would be "degrees of difference" - could be 0.001% or 1000%.

The point of the anger in this one is:
It is very late.
The difference is large.

Had the re-weightings been done on time, public sector workers would have gotten, 8%(?) instead of 11%(?).
How many RDP houses would that 3% have paid for?
 
But you forget the knock on affects, more than just the initial salary increases, one must look at the overall affect on inflation. As input costs and inflations go up, so does PPI, which induces further increases in CPI. And the consumer is affected, and then both private and public sector workers demand higher increases instead of saving. I have come to the conclusion that in a developing economy, raising interest rates is not very effective because consumers demand higher salaries instead of saving or cutting back on credit (the majority at least), and I also think that there is not much wrong with running a negative trade deficit.
 
The point I was making is that rebasing every year is as arbitrary as basing every 7 years. Whichever you choose will show different inflation numbers. Obviously then what you want is to keep the rebasing periods consistent (something StatsSA didn’t do but would seem from the Business Day article they had communicated some time ago. And there was certainly no outcry about it back then). The reason was to get more reliable and reflective data.

another thing is that not all economists are convinced that this will actually bring inflation down. Or not to as large an extent that Investec is stating. the reason for that is that some of the new things included were only surveyed after the Income and Expenditure report. So there is no reliable historical data to compute inflation for those on.

The unfortunate part is that this has occurred during a time of inflationary pressures worldwide so is an emotive issue. And this has possibly contributed to interest rates being higher than they should be. If Investec is correct. Time will tell which economists are right.

Investec have based their marketing on the fact that they were right last time there was something based on inflation. My biggest issue with they have done is that they have based their marketing of this issue on the fact that the last time they picked up a fundamental error. This time round it is a technical issue and their suggestion that they should redo the stats is certainly one that wouldn’t be considered in an economy like the US.
 
Moederloos said:
People are saying this did not cause a false "inflation bubble".
From where I sit, it did.
Just one such area - public service salary increases - a major cost to government, was based on this.
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Well, it's only a "false" bubble if we assume inflation had genuinely been overstated and the new figure is more correct. If the new figure is just an attempt to make things look better than they really are (which is not difficult to pull off, e.g. by messing around with what constitutes a basket of goods) then the "bubble" would be "real" (at least, the relatively recent portion of it).
 
Anyone hear Tito's live comments on 702? I was utterly disappointed with his childish attitude. I usually have the utmost respect for the man but he lost a few points today. Stating that he wouldnt speak with Investec's CEO, and neither would his senior economists. He reckons he might let his junior economists speak to him. What a tosser. Dialogue is key twit! And Investec DID submit their findings to StatsSA as did numerous other financial institutions.

He even went as far as to say that that he reckons it is a conspiracy by Investec to push up its share price, and then in the same breath said that was not an accusation of anything. I was disgusted by his childish reaction, especially considering the fact that he completely avoided on numerous occasions answering whether Investec was correct or not. He used his time on air to lambaste Investec instead of answering the issues raised...
 
This is not the first time Mboweni has shown an attitude problem.

Understating real inflation could in fact be a way to fight inflation because companies and the government can point to the official figure when handing out cost of living increases.
 
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