Food for Thought: CPI

CPI = Consumer Price Index.

It measures the price change of a fixed set of goods and services available in a society over a period of time. In layman's term, higher CPI means goods are more expensive, and people like you and me will complain about "money not enough".

Just a few days ago, our exchange rates band was raised because the authority was worried that inflation may be building up. Amazing! CPI for 2009 increased just 0.2 percent compared with 2008. And, the 2010 CPI forecast was around 2.5 to 3.5 percent. Right now, I am pretty sure you must be cursing and swearing at this number. Unless you have been out of earth for the past few months, you must have noticed that COE and car prices have shot to the sky, and property prices have gone to the roof for the past 1 to 3 months. So, how can the CPI forecast for 2010 be only 2.5 or 3.5 percent?

Well, to start with, CPI excludes lot of things that are very important to you like housing costs, loan repayment, etc, etc. So, even if you have to pay 100% more for your monthly loan repayment because of sudden adjustment to the mortgage loan interest rate, the CPI number will not move a bit. In fact, the CPI may even fall if the rental prices start to fall because there are over supply of flats for rental. In computing CPI, accommodation means rental or imputed rental for owner-occupied properties.

Anyway, hopefully, the exchange rate policy will help to relieve the inflationary pressure. If not, for most of us, money "really not enough".