Daily Archives: 30 May, 2007

SA inflation breaches inflation target in March ’07

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March 07 inflation in South Africa: CPIX 6.3% year-on-year

Measuring inflation

Measuring inflation is never easy, and while we have had a few high-profile errors by Stats SA in the last few years, the inflation numbers are probably not that bad. I mentioned some of these difficulties in relation to GDP before.

Inflation and Sean Summers

I remember a story about a lady calling Sean Summers and complaining that inflation was much higher than reported. Apparently (and I heard this from him live over radio on moneyweb radio) he took her credit card details (I would probably trust Mr Summers too) and called up her purchases over the previous year. Based on a like-for-like comparison of products, her “actual inflation” was significantly lower than reported inflation.

Why we spend more

Differences in the basket used (which has to be an average by definition) will give different inflation than an individual experiences. However, there are other factors that influence how much money we spend each day. In an economic expansion, we spend more because we buy more goods and services, not only because the price of good has increased. As everybody spends more, and conspicuously spends more, the normal frequency and standard of eating out increases, the types of cars purchased moves upmarket, more food is bought from Woolies and less from Shoprite.
This means consumers have less money left at the end of the month, but it is not necessarily all attributable to inflation. Inflation that an individual experiences may well be higher than reported – and I don’t deny the possibility that the Stats SA numbers are wrong – but until you take a detailed like-for-like analysis of your own standard basket of goods to calculate your own “experienced inflation” I am not convinced by the community comments below the article on moneyweb.

Monetary Policy Committee decision

Also, the interest rate decision will take into account the nature of inflation (food prices, petrol and possibly future electricity increases) rather than only the crude number. External shocks will result in higher inflation regardless of how much we squeeze consumers and business with higher interest rates.
We may or may not see an increase inspite of the breach. Time to wait and see.

Measures, targets and Alchemy

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When a measure becomes a target, it ceases to be a good measure.

I first heard this quote when dealing with performance measurement and remuneration structures for senior management. In that scenario, the danger is that you get exactly what you measure rather than the good behaviours related to or driven by the metrics chosen. The measure starts as Earnings Per Share (EPS) growth, which is generally a good thing. However, once management do the maths, they realise that reducing dividends to zero will boost EPS growth, even if it means pursing projects with a return lower than shareholders’ cost of capital. Measure becomes a target; measure ceases to be useful.
More on that some other time – it is an interesting point itself.

Now on to the magic and mystery, and science and great skill, and analysis and mathematics and theories, and occasional quack and snake-oil salesman – Search Engine Optimisation. Isn’t there an argument to say that, if the aim of search engines with their great yet imperfect algorithms is to reward fresh, relevant and useful content for relevant search terms, then the best long-term strategy would be to continue to write and publish fresh, relevant and useful content? No quick wins, and with less of the alchemy involved SEO companies wouldn’t get as many customers, but why isn’t this the best advice for long term traffic and search engine ranking? Rather than pursuing loopholes and quirks in any particular (temporary) search system, the measure should match something more fundamental – being a useful website. Difficult for that approach to need to be changed when Google uses “nofollow” links or omits duplicate stories or starts recognising your “invisible white on white text”.
Ok, before the backlash begins, there are practical lessons that can help search engines. “Obvious” things like “search engines are not people and therefore will struggle to read text if it is really a picture embedded in a fancy Flash animation”. This is probably a bad example – I expect fresh, useful and relevant content appears less often in glitzy Flash clips.

So isn’t it time to take the difficult medicine, and build a brand and loyalty and readership and customers and repeat business and structure value and goodwill by actually earning it?