The consumer price index (CPI) is a measure of the cost of living, or inflation. It is calculated by determining the average cost of a standard basket of retail goods and comparing the cost of those goods to the cost of the same goods at a base period. It provides a useful way to compare the relative value of a country’s currency from year to year. In PNG, the index is based on the prices of selected goods and services in five towns (Port Moresby, Goroka, Lae, Madang and Rabaul). The CPI in PNG is principally an urban measure: data for the cost of rural living in PNG do not exist. The commodity groups selected are food; clothing; alcohol, tobacco and betel nut; household sundries; and other goods and services, including transport, education, medicine and groceries other than food.
There are three CPI series in PNG, extending from 1962 to the present. The series used now begin in 1977. The values for the three series are listed in Table 1. The figures have been converted to a common base (100) with 1977 as the base year, and a combined index created.
Prices rose only slightly during the 1960s and early 1970s (Figure 1). From 1974 until 1994, prices rose at a faster rate. There were large increases in prices each year from 1995 to 2003. This was associated with the devaluation of the PNG kina relative to the United States dollar. The rate of increase slowed in 2004 and 2005. In 1994 the kina was floated,
meaning that since then, it has been allowed to move freely against other international currencies. In 2005, K9 had about the same spending power that K1 had in 1975. That is, prices have gone up by a factor of nine over this 30-year period.