ILO/UNECE Meeting on Consumer Price Indices 10 – 12 May 2010

1. ILO/UNECE Meeting on Consumer Price Indices 10 – 12 May 2010 Consumers, users, partners…and other interested parties Managing relations with external stakeholders of the South African Consumer Price Index (CPI) Patrick Kelly/ Lekau Ranoto

2. Introduction • CPI among most important and high profile of economic indicators • Use in monetary policy • Bonds and financial instruments • Contracts • CPI is often the subject of criticism: • Some populist • Some well informed • Need to be able to tell difference and know how to respond • Organisational reputation provides background for CPI criticisms

3. Background of the South African CPI • South Africa has a well developed price stats programme dating back 100 ` years • 2003: Economists from an investment bank asked questions on housing rental inflation – was a real problem • Lengthy delay in responding to criticisms • Criticisms then made public • Public embarrassment of statistics office • Compounded by problems in Census and Manufacturing statistics • Result: • Short term: sourced alternative data • revised CPI for 15 months - 2,3% • Long term: review of CPI methods • fundamental overhaul of CPI, change of management

4. Classifying types of users • Professional → Informed → Occasional • Professional users are typically economists in financial institutions. They have an in-depth knowledge of the CPI and are recognised as experts. They compile inflation projections based on complex models. They are often sources of expert comment for the media. • Informed users include stock and bond traders, businesses and trade unions. They need to know what the CPI is, and what the key drivers of inflation are now and expected to be in the future. Their source of information would frequently be the ‘professional’ users. • Occasional users are people or institutions who only need to know the CPI results. They use the inflation rate to adjust prices, pensions, or other contractual arrangements. They typically source the information directly from the statistics office.

5. A fresh approach to user relations • 2006 – 2009: Reweighting with fundamental overhaul of methods • Conscious plan to ensure high level of user engagement • To restore the credibility of the CPI in the eyes of key users and in the mind of the general public; • To ensure that the wide ranging changes being planned for the CPI were properly understood; and • To educate users on the reweighting and rebasing process given that the previous exercise had taken place over five years earlier.

6. Key groups of stakeholders • Statistics Council: • Statutory body with wide representation (Govt, business, academia, provinces) • Has sub-committee on Economic stats but not CPI experts • Best for endorsing proposals • User advisory committee: • Hand-picked CPI experts (Private sector economists, academia, Treasury, Central Bank, labour) • Able to provide expert input into methodological work • Provided basis for excellent relationship with key stakeholders • National Treasury and SA Reserve Bank (SARB): • Key state role players • Several bilateral and trilateral discussions • News media: • Editor of business daily on user advisory committee • Several background briefings on changes resulting in insightful articles

7. Timeline of events • September 2007 • Release of proposed new basket • First ever consultation process on basket composition • Good media coverage • July 2008: • Briefing for media and economists on changes to CPI which included • The final new basket and weights • Methodological changes • Changes to the main measure of consumer inflation • The method and timing of introducing the ‘new’ CPI (to take effect approximately two years later than would normally have been the case) • Public response • Initial reporting: factual/positive • User committee members good source of insight for media • Attempts to forecast impact of changes on inflation rate

8. Timeline of events • 15 July 2008: • Same pair of economists as 2003 raised concern that because of delay, the current inflation rate was too high resulting in higher than necessary interest rates • They called for immediate implementation of new basket • Was labeled as Stats SA having made another ‘error’ • Report received wide media coverage • Stats SA responded immediately with a clear and comprehensive press statement. Pointed out difference between a mistake and the scale of the overhaul necessitating extra time. Widely covered in media on 17 July • Press articles on 17 July and following days quote economists generally supportive of Stats SA • ”unsure what the furore was about as Stats SA had more than adequately telegraphed the changes…..Clearly they have learnt a few lessons from the last time something like this happened.” • (Collen Garrow, in Citizen Business)

9. Timeline of events • Support and interaction with organs of state • Public silence from organs of state…but • SARB Governor made call to radio station and affirmed confidence in Stats SA data • Behind the scenes discussions with Minister of Finance and Cabinet – both endorsed Stats SA position • February 2009 – Release of new indices • Very small difference in level of old and new indices • Factual/positive media reporting

10. Lessons learnt • It is important to identify the key role players who can influence a public debate. It is through these small number of ‘influencers’ that media perception, and thereby public perception, can change. • A hand-picked user committee can provide useful advice on methodological questions and prove invaluable allies when a crisis hits. Even if a politically appointed committee oversees the work of the CPI other surveys, an informal expert group is still very useful. • Transparent and regular communication to users lays the basis for credibility. Experts and the media do not only want to hear from CPI managers in bad times. Regular sharing of information builds up a relationship. • In the case described in this paper, CPI staff were free to communicate directly with experts and the news media. Not having to rely on office communications staff meant that the message was conveyed very clearly. • Close cooperation with colleagues at the central bank and National Treasury proved invaluable for behind the scenes support.