Abstract:
This paper examines the accuracy of measuring headline inflation in Egypt. Thus, the methodological framework of this paper includes a presentation of the most commonly used price indices in order to see why the CPI has become the main reference of headline inflation in most—if not all—countries. The study then discusses the construction of the CPI in Egypt, reviews and updates the assessment of the quality of Egypt’s CPI against the internationally accepted guidelines and practices. The study shows that, overall, Egypt’s CPI construction follows procedures and techniques that are increasingly consistent with international standards, guidelines and agreed practices. Yet, the gap is still wide between the public perception of inflation developments and the announced official figures. To improve credibility in official measures of inflation, the study proposes to make the calculations and methodology adopted in the construction of the CPI available to the public for independent verification. The paper also points out several shortcomings that, unless addressed, could become more serious over time for the CPI’s accuracy and reliability. These are mainly the way the outlet sample is selected, housing pricing, and the biases resulting from the substitution, quality adjustment and introduction of new goods.
