Oran A Hall | Where you live determines level of price changes you experience

When the Statistical Institute of Jamaica (STATIN) announces changes in the level of prices in Jamaica, it is not saying that all residents experienced the same degree of price changes over the period it is reporting on. There is one very important reason: where each person lives.
STATIN uses the Consumer Price Index (CPI) to measure the level of price changes in the economy. The All Jamaica Index says what the national level of price changes is. It is the average of three regional sub-indices: Greater Kingston Metropolitan Area, Other Urban Centres and Rural Areas. There is good reason for this – consumption patterns are not the same in every part of the country, being heavily influenced by, for example, the nature of social and economic activities and the nature of the population.
The CPI is based on a typical ‘basket’ of goods and services used by all consumers, and the importance of each item in this basket is reflected in its weight — the higher the weight, the more important the item. Naturally, an item with a high weight has a greater impact on the CPI than one with a lower weight which increases or decreases by the same amount.
To compute the CPI, STATIN classifies the goods and services into several divisions – for example, food and non-alcoholic beverages; clothing and footwear; restaurants and accommodation; transport; health; and housing, water, gas and other fuels. Divisions are further broken down into groups, which are broken down into classes.
The items included in the CPI and their weights are based on the Household Expenditure Survey which STATIN conducts, and it tracks prices monthly by doing surveys –tracking the same items at the same businesses based on what they sell and the level of consumer purchases.
Because the consumption pattern in each region differs, the weight assigned to the same type of item may be different in each region, so even if the price increases by the same amount, its effect on the CPI is different. In reality, the price of the same item tends not to change to the same degree in all of the regions, thus having varying effects on the CPI.
There are many reasons for what people spend on and how much they spend on particular goods and services, and there are several reasons why some goods and services cost more in some regions than in others.
Entertainment activities tend to be more common in the Greater Kingston Metropolitan Area than in Other Urban Centres, and less common in the rural areas than in the other urban centres. Beyond that, the financial means of residents tend to dictate what they spend on and how much. Thus, the weight of entertainment is different in the three regions.
Transportation costs also have a strong bearing on price changes. The further the distance between the final consumer and where the item is coming from, the more it generally costs, considering that transportation costs include the cost of fuel and maintenance, among other costs. The cost of transportation thus tends to be less in the urban areas than in the rural areas.
Bearing in mind that consumers in the rural areas tend to use agricultural products that are produced close to them, when supply is disrupted by weather conditions, for example, price changes can be significant.
Price differences can be significant even without supply disruptions. It took me some time to understand why many agricultural products in Hanover and St James cost much more than in the Corporate Area. And I am not talking about Coronation Market, where the prices of goods sourced from big producers outside of the Corporate Area are sourced.
Perhaps close proximity to Montego Bay, the tourism hub, is partially responsible, more so considering that goods are purchased in Montego Bay for resale in the local market.
The cost of housing varies across the regions, Greater Kingston being the highest generally. Rent can be quite a monster. I was talking to a medical professional recently and he shared with me the cost of several medical procedures, which was significantly more in Greater Kingston than in other urban centres. The main cause of the difference? Rent.
In terms of utilities, though the rates are generally the same for consumers in all regions, usage makes the difference, and it is influenced largely by lifestyle as well as affordability.
Uniform price movement across all regions nationally is no guarantee that all budgets will be affected to the same degree, largely because the same item can have a different level of importance in various budgets. Thus, the consumer who uses proportionately more will be more seriously affected by any price change.
Regional consumption patterns account significantly for why inflation varies across Jamaica. Ultimately, though, it is the consumption choices of consumers within the context of these regional patterns which determine each person’s inflation rate.
Oran A Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email: finviser.jm@gmail.com