JARGON BUSTER in alphabetical order: CPI and CPIX

To measure inflation, one needs some yardstick of the general level of prices in the economy. The most popular such yardstick is the consumer price index (CPI), which is an index of the prices of a representative basket of consumer goods and services. The CPI thus represents the cost of the shopping basket of goods and services of a typical or average South African household. Our CPI is compiled by Statistics South Africa. The total South African CPI basket consists of 403 products and services (as January 2009) which are classified into various groups and subgroups, for which separate indices are constructed. The compilation of the CPI for each month thus takes some time and is published during the second half of the following month. Once a set of CPI figures are available, an inflation rate can be calculated. This is done by calculating the percentage change from one period to the next. The inflation rate is always expressed as an annual rate. In other words, if we say that the inflation rate is 10%, this means that prices are increasing at a rate of 10% per year. The most common method of calculating the inflation rate is to compare the latest months CPI with the CPI of the corresponding month of the previous year. When the South African authorities decided to adopt inflation targeting in South Africa in 2000, one of the main decisions they had to take was to choose which inflation rate they should target. After much research it was decided to use the rate calculated on the basis of the CPI, excluding mortgage interest rates only. This rate is called the CPIX rate. In January 2009, however, a re-weighting and rebasing of the inflation basket was determined with a lesser weighting for food prices amongst other changes. The new basket of products is more in line with international norms and best practices, and Stats SA aims to collect about 100 000 actual prices per month. The rebasing and reweighting of the basket is done to make the CPI more relevant to South African consumers. The new CPI basket can be considered an up-to-date reflection of current prices in South Africa and includes inflation on things such as minibus taxi fares, restaurant and take-away meals, funeral costs, hotel rooms, sports event tickets, DVD players and internet costs. Henceforth it was determined to use CPI (excluding owners equivalent rent) as the new measuring rate.
Source: South African Reserve Bank and Statistics SA

Inflation
Inflation is a process of continuous increase in the prices of most goods and services in a country. This does not necessarily mean that all prices increase. There may be some exceptions, such as computer prices which have actually declined in recent years. Inflation can therefore be described as a persistent general increase in prices. Inflation is measured by defining a basket of goods and services used by a "typical" consumer and then keeping track of the cost of that basket over a period ranging from one month to twelve months. This basket is known as CPI (Consumer price index).
Source: South African Reserve Bank

Median versus Average values

The median literally is the value in the middle. The median of a list of values in a dataset, from largest to smallest can be determined by simply finding the one in the dead-centre.

EXAMPLE: For the SA Widget Co., here are the worker's salaries: R100,000 R50,000 R50,000 R15,000 R15,000 R15,000 R15,000 R9,000 R9,000 (CEO) (upper management) (upper management) (general workers) (general workers) (general workers) (general workers) (machine operators) (machine operators)

To determine the median salary of the 9 employees: Define the one halfway down the list, the fifth value, which is R15,000. That's the median. Comparing the average (also known as the mean) to the median for a set of data can give you an idea how widely the values in the dataset are spread apart. In this case, there's a somewhat substantial gap between the CEO and other workers. (In the real world, a set of just 9 numbers won't be enough to indicate very much about anything. Our example uses a small dataset to help keep the concept clear.) The average is determined by adding all the values and then dividing by the number of values. In the example above we add all the salaries together = R278 000 and then divide by 9 employees. The average is therefore R30 888 which is clearly not representative of the majority of workers. The median is used by many statisticians as a more accurate indicator than average values which could include very high or very low values and therefore skew the data.
Source: Robert Niles website

MPC
The Monetary Policy Committee of the Reserve Bank of South Africa (SARB). This organ of government determines the countrys monetary policy and has as its objective the maintenance of a healthy economy. Its primary tool is the REPO Rate which it increases or decreases depending on the need. The repo rate serves as a benchmark for the level of short-term interest rates. For example, if the repo rate increases, banks have to pay more for repo funds. To maintain their existing profit margins, banks raise the interest rates at which they take deposits from and lend money to their customers. This causes a general rise in interest rates or the cost of holding money, and this eventually helps to control inflation by reducing the demand for credit to be spent on the purchase of goods and services. The actions of SARB described here are also known as the formulation and implementation of monetary policy.
Source: South African Reserve Bank

PPI
Another important price index is the production price index (PPI). Whereas the consumer price index (CPI) measures the cost of a representative basket of goods and services to the consumer, the PPI measures prices at the level of the first significant commercial transaction. For example, the prices of imported goods are measured at the point where they enter the country and not where they are sold to consumers. Likewise, manufactured goods are priced when they leave the factory, not when they are sold to consumers. Another important feature of the PPI is that it includes capital and intermediate goods (excluded from the CPI), excludes VAT (included in the CPI) and excludes services (which account for 45% of the CPI basket). The PPI is therefore based on a completely different basket of items than the CPI. The PPI, which is also estimated and published on a monthly basis by Statistics South Africa, measures the cost of production rather than the cost

of living. Unlike the CPI, the PPI therefore cannot be related directly to consumers living standards. The PPI is nevertheless very useful in the analysis of inflation. Because it measures the cost of production, a significant change in the rate of increase in the PPI is usually an indication that the rate of increase in the CPI will also change a few months later. The methods used for calculating the rate of increase in the PPI are the same as the methods used for calculating an inflation rate based on the CPI.
Source: South African Reserve Bank

Rate Concession
The discount on the prime overdraft rate that a financial institution will give to a client. For example, a rate concession of 1,5 % means that the client will pay the prime rate, less 1,5%. The clients creditworthiness, income, value-to-loan ratio and other pointers may be deciding factors. The rate concession can be fixed for the entire period of the loan or for just a portion thereof. Financial institutions usually reserve the right to review the concession from time to time.

Repo Rate:
The repo rate, also known as the repurchase rate, is the rate at which the South African Reserve Bank, (SARB) lends money to local banks in the private sector. The SARB acts as banker for private banks. Banks experience a cash shortfall or a need for liquidity on a daily basis and their lender of last resort is the Bank. A formal system is in place to guide the process through which banks borrow from the Bank and it is called the repurchase transactions system (repo system). The repo system of borrowing and lending involves the temporary sale of a financial asset by the borrower (bank) in exchange for the needed cash from the lender (SARB). In such a transaction, there is an explicit agreement that the borrower must repurchase the financial assets at an agreed future date for example, after one week. The repo rate is determined by the SARB Monetary Policy Committee (MPC) who meet 6 times each year for a two-day meeting. It is expressed as a rate per annum.
Source: South African Reserve Bank

Kagiso PMI
The Purchasing Managers Index (PMI) is calculated as the weighted average of the following indices (weights in parentheses): Production (0.25), New Orders (0.30), Employment (0.20), Supplier Deliveries (0.15) and Inventories (0.10). An index for which a value of 50 indicates no change in the activity, a value over 50 indicates increased activity and a value below 50 indicates decreased activity.

Knight Frank Global House Price Index

The Knight Frank Global House Price Index was started in 2006 as the definitive means for investors and developers to monitor and compare the performance of mainstream residential markets across the world. The index is compiled on a quarterly basis using official government statistical office or central bank data where possible. In some instances reliable indices from third-party sources have been used. The following 48 countries (in alphabetical order) are measured: Australia, Austria, Belgium, Bulgaria Canada, China, Colombia, Croatia Czech Republic Denmark, Dubai, UAE Finland, France Germany, Greece Hong Kong, Hungary Iceland India, Indonesia, Ireland Israel, Italy Japan Jersey, Latvia, Lithuania Luxembourg,

Malaysia, Malta, Netherlands, New Zealand Norway, Poland, Portugal, Russia, Singapore, Slovak Republic Slovenia, South Africa, Spain Sweden, Switzerland, Taiwan, Turkey, Ukraine United Kingdom, United States.

Lightstone Repeat Sales Index

The indices are based on observed changes in the value of actual housing units and provide a unique, spatial view of the SA housing market. The indices have application in mortgage portfolio management, provisioning reviews, market surveillance, default reduction, loss mitigation and prepayment analyses. The national index is updated monthly. The Lightstone Repeat Sales Index system applies advanced statistical methods to a comprehensive property data base - compiled from the Deeds Office, the Surveyor General and other sources - to generate repeat sales inflation data for individual residential properties. Despite the statistical and actuarial rigour applied, Lightstone cannot guarantee the accuracy and reliability of the data. Furthermore, the index is a statistical tool and does not amount to advice and may not be applicable in some cases. METHODOLOGY: In contrast to 'average house price' indices, repeat sales indices provide a measure of the actual price inflation of houses that have transacted twice within a particular period of time. The main benefit of this is that it is less influenced by the mix of transacting properties. All property transactions in South Africa are registered in the Deeds Office and each record contains the legal details of both the property and the transaction. For the purposes of the Repeat Sales Index for residential properties, the following transactions have been excluded: farms; any transactions which may be of a development, commercial or community services nature; new developments; sales made in execution of a judgement; non-arms-length transactions; transactions where the inflation is extremely different to the norm of the statistical distribution of inflation rates; and township transactions.