Enhancing CPI accuracy: A comparative analysis of weighting techniques and consumer behaviour in Malaysia

This study addresses the limitations of traditional Consumer Price Index (CPI) calculation methods by proposing an improved framework that incorporates optimized weighting techniques. The proposed approach utilizes nonlinear programming to better reflect consumer spending behavior in Malaysia, enhancing the accuracy and relevance of inflation measurement. Empirical analyses reveal fluctuations between the newly generated weights and those provided by the Department of Statistics Malaysia (DOSM), largely influenced by consumer behavior, economic conditions, and supply-side factors. Strong positive correlations between the traditional and new CPI indicate consistency, while comparative analyses of CPI trends across states uncover significant regional variations in inflation dynamics. These findings underscore the need for more adaptive weighting approaches to better reflect evolving consumer habits. Future research is encouraged to incorporate granular data, dynamic factors, and alternative weighting models to improve CPI methodologies further. This study provides valuable insights for policymakers, contributing to more effective economic planning and decision-making.