Compensation Assignment 1

1. What is CPI ?

The Consumer Price Index (CPI) is a widely used measure of inflation and deflation, based on
monthly changes in consumer prices. It differs from the Producer Price Index (PPI), which
measures changes in prices received by producers.(Fernando, 2024)

2. Is it used and implemented in Oman? and how ?

Oman's inflation rate has dropped to its lowest point since March 2021, reaching 0.30% in
October 2023. This is attributed to reduced transportation costs and stable fuel, utilities, and
housing prices, influenced by global factors and government measures. The Consumer Price
Index (CPI) is a widely used tool in Oman, used by the National Centre for Statistics and
Information (NCSI). It serves several purposes, including measuring inflation, influencing policy
formulation, influencing wage negotiations, and indexing certain contracts, pensions, or benefits.
The CPI data is collected from various locations and outlets across the country and weighted and
aggregated to produce an overall index. The NCSI regularly publishes CPI reports to provide
transparency and insight into price movements in Oman. The National Centre for Statistics and
Information (NCSI) in Oman uses and monitors the Consumer Price Index (CPI), a global
measure of economic activity.The CPI in Oman is a tool used to measure inflation by tracking
changes in goods and service prices, enabling policymakers, economists, and businesses to
assess its impact on the economy. Also, CPI data is utilized by labor unions and employers to
determine wage adjustments, ensuring that wages align with the cost of living. The CPI data also
can be used for indexation, adjusting contracts, pensions, or benefits based on changes in the CPI
to safeguard individuals from losing purchasing power due to inflation. In addition, CPI data aids
policy makers in making informed decisions on monetary, fiscal, and economic strategies,
adjusting interest rates, controlling the money supply, and implementing measures for price
stability and economic growth.The CPI in Oman follows international standards, involving a
representative basket of goods and services, collecting price data, and regularly publishing CPI
reports to provide transparency.

3. Due to CPI, in the last 10 years what are the changes and its effect on employees ?

A significant increase in CPI over the past 10 years suggests inflation is eroding purchasing
power, potentially reducing employees' real wages if salaries don't keep pace with inflation.
Also, higher CPIs indicate an increased cost of living, causing employees to spend more on
essential goods. Wages may not align with CPI, causing financial strain. Changes in CPI can
impact employees' savings and investments, as inflation can reduce the value of cash or
low-interest accounts, necessitating investments in inflation-protected assets. Also, Labor unions
and employers may negotiate wage increases or adjustments based on CPI changes, and
employment contracts may include periodic wage reviews tied to inflation. Employers may
adjust wages based on CPI changes, raising salaries to maintain living standards, but these
adjustments may not fully offset inflation effects, potentially causing a decline in real wages. The
impact of CPI changes on Oman employees over the past decade depends on inflation, wage
growth, individual spending patterns, and economic conditions, requiring analysis of historical
data.

4. And what happened to purchasing power in Oman?

The increasing CPI indicates rising costs of goods and services, reducing purchasing power and
making it harder for individuals to maintain a standard of living. Wage growth also can
counteract inflation's effects and enhance purchasing power, providing individuals with more
disposable income to maintain or enhance their standard of living.Government policies,
including subsidies and taxation, can influence purchasing power, reducing inflation effects and
affecting the prices of essential goods and services. Also,economic growth and low
unemployment rates often lead to higher purchasing power due to increased income and job
opportunities.

References:

CEICdata.com. (2018, November 20). Oman OM: Consumer Price Index: % Change over

Previous Period.

https://www.ceicdata.com/en/oman/consumer-and-producer-price-index-annual/om-consu

mer-price-index--change-over-previous-period

Fernando, J. (2024, February 13). Consumer Price Index (CPI): What It Is and How It's Used.

Investopedia. https://www.investopedia.com/terms/c/consumerpriceindex.asp

Inflation in Oman increases by 2.8 percent in 2022. (n.d.).

https://www.qna.org.qa/en/News-Area/News/2023-07/30/0033-inflation-in-oman-increas

es-by-28-percent-in-2022
World Economic Magazine. (2024, January 3). Navigating inflation Trends and Fiscal resilience

in Oman | World Economic Magazine. World Economic Magazine.

https://worldecomag.com/navigating-inflation-trends-and-fiscal-resilience-in-oman/