72% of Mongolia’s basket of goods are imports STUDY
The National Statistics Office (NSO) conducted a study on the basket of goods that affect inflation in Mongolia. The study, titled “The Effect of Basket of Goods on Inflation and Short-Term Inflation Projection” uses modern methods such as the ridge regression to calculate the effect of inflation and the LASSO regression analysis method to project short-term inflation.
The basket is a term used to describe the collection of goods and services that are used to measure consumer price inflation. The study highlighted that the majority of the basket in Mongolia’s case is made up of imported goods and services, 72 percent to be exact.
Some 344 goods and services included in Ulaanbaatar’s Consumer Price Index (CPI) were used for the study while the price of service was used for reference from 2011 to 2018.
The study concluded that the following products have the most effect on inflation:
Cost of restaurant food – 0.01 percent
Borgio beer – 0.08 percent White oil paint – 0.07 percent AI-92 gasoline – 0.07 percent Fairy dishwasher – 0.07 percent
While the aforementioned products seem inconsequential at first glance, they have a dramatic effect on the price of services and as a result, on inflation as a whole. Another, albeit more obvious, factor in the increase of inflation was the price of mutton and lamb meat. Whenever the price of mutton increased by 10 percent, inflation rose by 0.03 percent on average.
Looking at the 344 goods and services included in the CPI index basket of goods, the following had the most effect on inflation:
Gold M, 250 gram chocolate cream – 0.011 percent Barbaris hard candy (Russia) – 0.011 percent
Vidan, 380 gram compote (Poland) – 0.011 percent
Cost of restraint food – 0.010 percent
Classic Vitana seasoning, 170 ml (China) – 0.010 percent Snickers, 70 grams – 0.009 percent Alpen Gold chocolate, 100 grams – 0.009 percent Morozka ice cream (Russia) – 0.09 percent
Borgio beer 0.5 liters, APU JSC – 0.008 percent AltanTaria noodles, 300 grams – 0.008 percent
Cotton t-shirt, (China) – 0.008 percent
Salted nuts, 185 grams – 0.008 percent
Tire repair patch – 0.008 percent
Instant noodles, 120 grams – 0.008 percent
Silk, 1 meter – 0.008 percent
A 10 percent increase in the price of Gold M chocolate cream year on year results in a 0.11 percent increase in inflation. The fact that 72 percent of the 50 named goods and services in the basket of goods are imported underlines Mongolia’s dependence on imported goods.
Looking at the study, inflation in Mongolia is rather seasonal. On average, inflation increases in March, April and May while it tends to decrease in September, October, and November. Using the LASSO regression analytical method, the study projects inflation rate to slightly decrease in January 2019 and to surge beginning between February and May, 2019.
The study underlined that most of the inflation studies in Mongolia tend to link inflation with macroeconomic performance. This study looked at the basket of goods that are widely used in households around the country to indicate which products have the most effect on inflation and calculate the short-term projection of inflation.