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Calculating the Annual Escalation Adjustment for Municipal Infrastructure
REPORT NUMBER: 8237
VERSION 2.0
19 JULY 2013
Prepared by
Aurecon (Pty) Ltd PO Box 74381 Lynnwood Ridge 0040 South Africa
Contact Person: Dr HMS Belmonte
Tel: 012 427 2560 Fax: 086 723 1845
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 2
15 November 2012 Dr H.M.S. Belmonte
APPROVAL PAGE
Name
Designation Signature Date
Compiled by: Name: Dr H.M.S. Belmonte
Technical Lead
19 Jul 2013
Approved by: Name: Mr Chris Schmidt
Technical Director
19 Jul 2013
AMENDMENT HISTORY
Version Date Amendment Section / Chapter / Page CR
Number
Checked by:
(Name and Initial)
1.0 16 Nov 2012 Final draft for comment. N/A HB, CS
2.0 19 Jul 2013 Updated for 2012/13 financial year 2 HB, CS
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TABLE OF CONTENTS
List of Figures ................................... ................................................................................................................ 4
List of Tables .................................... ................................................................................................................. 4
List of Abbreviations ............................. ........................................................................................................... 5
1. Introduction ...................................... ................................................................................................. 6
2. Approach .......................................... .................................................................................................. 7
2.1 Introduction .......................................................................................................................................... 7
2.2 The Formula ........................................................................................................................................ 7
3. Methodology ....................................... ............................................................................................... 9
3.1 Introduction .......................................................................................................................................... 9
3.2 The Indices .......................................................................................................................................... 9 3.2.1 Introduction ............................................................................................................................. 9 3.2.2 CPI - Labour Index ............................................................................................................... 11 3.2.3 PPI - Plant Index, Material Index and Fuel Index ................................................................. 12
3.3 The Coefficients ................................................................................................................................ 13
3.4 Calculating the Contract Price Adjustment........................................................................................ 15
4. Comparison of %CPA to CPI and PPI ................. .......................................................................... 17
4.1 Introduction ........................................................................................................................................ 17
4.2 CPI..................................................................................................................................................... 17
4.3 PPI ..................................................................................................................................................... 18
4.4 Comparison of Inflation Indices ......................................................................................................... 18
5. Concluding Remarks ................................ ...................................................................................... 20
References ........................................ .............................................................................................................. 21
Appendix A – Labour, Plant, Material and Fuel Indic es .............................................................................. 22
Appendix B – Headline CPI and PPI ................. ............................................................................................ 29
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List of Figures
Figure 4-1 Calculated %CPA, Headline CPI and PPI form the 2001/02 to 2012/13 Municipal Financial Years. 19
List of Tables
Table 3-1 Conversion Factor for Determining the CPI Indices from the 2012 and 2008 Base Years to the 2000 Base Year 9 Table 3-2 Using the Conversion Factor for Determining the CPI Indices 10 Table 3-3 Conversion Factor for Determining the PPI Indices from the 2012 Base Year to the 2000 Base Year 10 Table 3-4 Labour Index Values per Province for each Financial Year (Base Year = 2000) 11 Table 3-5 Plant Index, Material Index and Fuel Index Values for each Municipal Financial Year 12 Table 3-6 Guidelines for the Coefficients for the Contract Price Adjustment as published by the CIDB 13 Table 3-7 Statistical Analysis of Coefficient Values in CIDB Guideline 13 Table 3-8 Weighting of Coefficients to Represent Typical Composition of Municipal Infrastructure 14 Table 3-9 Final Recommended Coefficients for Municipal Infrastructure 14 Table 3-10 Contract Price Adjustment Factor Calculated from the 2001/2 to the 2012/13 Municipal Financial Year 15 Table 4-1 Annual Municipal Financial Year %CPI from 2001/02 to 2012/13 17 Table 4-2 Annual Municipal Financial Year %PPI from 2001/02 to 2012/13 18 Table 4-3 Comparison between Calculated Annual %CPA, CPI and PPI, based on Municipal Financial Years 19 Table A-0-1 Labour Index values as obtained from Stats SA CPI Index per Province 22 Table A-0-2 Plant Index, Material Index and Fuel Index values as obtained from Stats SA PPI 25 Table B-0-1 Headline Consumer Price Index: Index numbers and Annual Percentage Change on a Monthly Basis 29 Table B-0-2 Headline Producer Price Index: Index numbers and Annual Percentage Change on a Monthly Basis 30
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 5
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List of Abbreviations
%CPA - Percentage Contract Price Adjustment
fCPA - Contract Price Adjustment Factor
CIDB - Construction Industry Development Board
CPA - Construction Price Adjustment
CPAP - Contract Price Adjustment Provisions Work Group Indices
CPI - Consumer Price Index
FIDIC - Fédération Internationale Des Ingénieurs-Conseils, French for the International Federation of Consulting Engineers
PPI - Producer Price Index
SAFCEC - South African Federation of Engineering Contractors
SAICE - South African Institution of Civil Engineering
SEIFSA - Steel and Engineering Industries Federation of South Africa
Stats SA - Statistics South Africa
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1. Introduction
Under the Public Finance Management Act No.1 of 1999 and the Municipal Finance Management Act of 1999
No.56 of 2003, municipalities are required to account for their assets in compliance with GRAP (Generally
Recognised Accounting Practice). Most municipalities provide services to their communities through their
infrastructure assets that account for the largest portion of the value of all their assets that are captured within
their asset register. The asset registers are prepared as part of the annual financial statements that are audited
by the Auditor General.
The challenge with valuing infrastructure assets lies in availability, or more accurately in the lack of availability of
accurate costing data for the broad spectrum of infrastructure assets that are typically owned by municipalities.
Ideally first principal modelling should be utilised to determine the valuation of infrastructure assets on an annual
basis, but the time and data requirements for implementing this approach are onerous which tends to make the
costs associated with this approach prohibitive. Unfortunately there is no national system in place that can
assist with the provision of accurate infrastructure asset valuations on an annual basis. In many cases
infrastructure asset valuation data or the unit rates derived from pre-exiting infrastructure costing data that is
available tends be historic. This presents a challenge in terms of the alignment between the age of the
valuation data and the age of the infrastructure being evaluated, due to the effect of inflation on the buying
power of money.
There are several measures or inflation rates that can be utilised to reflect this erosion in the purchasing power
of money. The most commonly used measure for price inflation is the Consumer Price Index (CPI) which is
usually calculated as a measure of the average change over time in the prices paid by urban consumers for a
market based basket of consumer goods and services. Another measure is the Producer Price Index (PPI)
which measures the average change in prices received by domestic producers for their output. However since
municipal infrastructure is created through civil engineering works, the infrastructure will be not representative of
the typical goods and services that an average ‘urban consumer’ uses nor the average price of the national
produce output. Thus using the CPI or PPI as measures for determining the value of municipal infrastructure is
not ideal as these indices will not be representative of the civil engineering construction industry.
This paper outlines an approach for utilising the Contract Price Adjustment (CPA) formula, that is used in the
construction industry and in particular in civil engineering construction to compensate contractors for the
escalation in costs over time, for escalating and de-escalating the value of municipal infrastructure assets. As
the Contract Price Adjustment is widely accepted in the civil engineering construction industry and is an effective
measure of cost escalation (i.e. inflation), it would thus provide a more representative measure of the expected
escalation and de-escalation in costs of municipal infrastructure.
This document details the methodology, assumption and results of this approach for determining a CPA based
‘inflation’ rate for municipal infrastructure.
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2. Approach
2.1 Introduction
Most engineering construction based contracts contain provisions for adjustments to changes in cost (i.e. price
escalation) utilising a price adjustment formula to take into account the increases or decreases in the costs of
labour, equipment, plant, material and fuel over the period of the contract. It is the general practice that the
client of the works specifies the exact formula that is used for the contract; however standard formulae for
determining the escalation have been developed, in South Africa by: the South African Institution of Civil
Engineering (SAICE) ), South African Federation of Engineering Contractors (SAFCEC) and the Steel and
Engineering Industries Federation of South Africa (SEIFSA), and internationally by the Fédération Internationale
Des Ingénieurs-Conseils (FIDIC), French for the International Federation of Consulting Engineers.
The approach followed in this paper utilises the formula developed by the South African Institution of Civil
Engineering for determining the price escalation for construction works.
2.2 The Formula
The formula accepted and approved for inclusion in the General Conditions of Contract for Construction Works
(Second Edition, 2010), by the South African Institution of Civil Engineering (SAICE), is based on the Haylett
Formula for escalation, which has been adopted in the industry as it has been accepted by the SIACE,
Construction Industry Development Board (CIDB) and the South African Federation of Engineering Contractors
(SAFCEC). The expression utilised by the SAICE to calculate the Contract Price Adjustment Factor, fCPA, is
presented in Equation 1.
���� � �1 � �� � ������ � ���
��� � ���
��� � ���
��� � 1� Equation 1
Where:
• “x” is the proportion of the contract value that is not subject to adjustment (i.e. the fixed portion), and unless
stated otherwise in the contract the fixed proportion will be 0.10 or 10%. Thus the portion that will be
subject to adjustment is 0.9 or 90% of the contract/claim value.
• “a”, “b”, “c” and “d” are the coefficients contained in the contract which are deemed, irrespective of the
actual constituents of the work, to be representative of the proportionate value of labour, contractor’s
equipment, materials (excluding specialist materials which must be separately stipulated in the contract)
and fuel respectively. The arithmetical sum of “a”, “b”, “c” and “d” must be equal to unity. Thus these
coefficients are effectively weighting factors that account for the proportion of the labour, plant, material and
fuel values of the construction works being carried out.
• “L” is the Labour Index, the value for which is taken as the Consumer Price Index for the Province where
the work is/was carried out as published by Stats SA in their monthly statistical news release P0141
(Consumer Price Index) (Table 14).
• “P” is the Plant Index, the value for which is taken as the Producer Price Index for Civil Engineering Plant
as published by Stats SA in their monthly statistical news release P0151 (Contract Price Adjustment
Provisions Work Group Indices (CPAP)) (Table 4).
• “M” is the Materials Index, the value for which is taken as the Producer Price Index for Civil Engineering
materials as published by Stats SA in their monthly statistical news release P0151 (Table 3).
• “F” is the Fuel Index, the value for which will be taken as the Producer Price Index for Diesel at wholesale
level for the area where the contract is being carried out as published by Stats SA monthly statistical news
release P0151 (Table 4).
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15 November 2012 Dr H.M.S. Belmonte
• For “L”, “P”, “M” and “F” the suffix “o” denotes the base indices applicable to the base time frame (month or
year) that will be utilised in the determination of the Contract Price Adjustment Factor and the suffix “t”
denotes the current indices applicable to the future time frame (month or year) that will be utilised in the
determination of the Contract Price Adjustment Factor.
The price adjustment amount is determined by multiplying the original applicable/relevant amount by the
Contract Price Adjustment Factor (fCPA). In summary the expression in Equation 1 provides a multiplication
factor to adjust what the contractor is paid for to reasonably account for the effects of inflation that occur within
in the civil engineering construction industry over the period of the contract. Hence the formula in Equation 1
provides an effective inflation adjustment mechanism for the civil engineering construction industry that can be
calculated based on published CPI and PPI indices that are germane to the civil engineering construction
industry.
Considering that the current replacement cost value of any given municipal asset needs to be representative of
the cost that would be incurred if that same asset had to be constructed in the same location to provide the
same service, utilising the Construction Price Adjustment to determine the escalation in value of municipal
assets due to inflation would provide a more representative measure than simply scaling the municipal asset
value by CPI or PPI rate. Utilising the Construction Price Adjustment formula in Equation 1 it is thus possible to
determine the multiplication factor (i.e. the percentage change) for adjusting the value of municipal infrastructure
to accommodate for inflation.
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15 November 2012 Dr H.M.S. Belmonte
3. Methodology
3.1 Introduction
In the proposed methodology the Haylett Formula as adopted by the SAICE for determining the Construction
Price Adjustment will be calculated for the municipal financial year from 2001/02 to 2012/13. However in order
to use the expression in Equation 1, the required indices data for the Labour Index, the Plant Index, the
Materials Index, the Fuel Index along with the weighting coefficients (for labour, contractor’s equipment,
materials and fuel) must first be determined. This section details how each of the required indices and
coefficients are determined, then utilised to calculate the Construction Price Adjustment.
3.2 The Indices
3.2.1 Introduction
The indices for the Labour Index, Plant Index, Materials Index and Fuel Index are taken from the Statistical
News Releases P0141 and P0151, which published by Stats SA on a monthly basis.
The first consideration that needs to be taken into account is that Stats SA calculates the CPI and PPI on a base
year and every few years they change the base year. The current base year for the CPI is 2012, previously it
was 2008 and before that it was 2000 and 1995. Stats SA provided a conversion factor to change the indices
from the 2008 base year to the equivalent indices for the previous base year (2000). In order to determine the
inflationary changes from 2000/1 municipal financial year onwards it was decided that the base year that would
be utilised for this study for the CPI and PPI indices would be 2000 base year.
This means that for the CPI we would need to utilise the conversion factor to convert the newer CPI indices from
the 2012 base year (where 2012 = 100) to the 2008 base year (where 2008 = 100) and to then convert from the
2008 base year (where 2008 = 100) to the 2000 base year (where 2000 = 100).
Presented in Table 3-2 is the conversion factor for determining CPI Indices for the nine provinces from the 2000
base year to the 2008 base year, from the 2008 base year to the 2012 base year and the derived conversion
factor for determining CPI Indices from the 2012 base year to 2000 base year. In Table 3-1 the provinces are
listed by their initials.
Table 3-1 Conversion Factor for Determining the CPI Indices from the 2012 and 2008 Base Years to the 2000 Base Year
2000 : 2008 2008 : 2000 2008 : 2012 2012 : 2008 200 0 : 2012 2012 : 2000
WC 0.6085 1.6433 0.7893 1.2670 0.4803 2.0821
EC 0.6067 1.6483 0.7776 1.2860 0.4718 2.1197
NC 0.5895 1.6965 0.7788 1.2840 0.4591 2.1783
FS 0.6478 1.5438 0.7788 1.2840 0.5045 1.9822
KZN 0.6157 1.6242 0.7924 1.2620 0.4879 2.0497
NW 0.6147 1.6269 0.7849 1.2740 0.4825 2.0727
GP 0.6176 1.6191 0.7937 1.2600 0.4902 2.0401
MP 0.5917 1.6899 0.7776 1.2860 0.4601 2.1732
LP 0.6257 1.5983 0.7899 1.2660 0.4942 2.0234
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15 November 2012 Dr H.M.S. Belmonte
Presented in Table 3-2 is an example of how the conversion factor for determining CPI Indices from one base
year to another base year, for the: 2000 base year to the 2008 base year (and visa-versa), the 2008 base year
to the 2012 base year (and visa-versa) and the derived conversion factor for the 2000 base year to 2012 base
year (and visa-versa). In effect to covert a CPI index from the 2008 base year (where 2008 = 100) to the 2000
base year (where 2000 = 100), simply multiply the CPI indices for 2008 base year by the Conversion factor
(1.6191) to get the equivalent indices as per the 2000 base year.
Table 3-2 Using the Conversion Factor for Determining the CPI Indices
Base Year A : Base Year B Conversion Factor Effective Index Base Year A
Effective Index Base Year B
2000 : 2008 0.6176 100 61.76
2008 : 2000 1.6191 100 161.91
2008 : 2012 0.7937 100 79.37
2012 : 2008 1.2600 100 126.00
2000 : 2012 0.4902 100 49.02
2012 : 2000 2.0401 100 204.01
The current base year for the PPI is 2012, which means that there for all PPI indices published after 2012 will
need to converted from the 2012 base year to the 2000 base year. However there will be no need to convert
any of the indices data from one base year to another for the indices between 2001 and 2012.
Presented in Table 3-3 is the conversion factor for determining PPI Indices for the Plant (Civil Engineering
Plant), Materials (Civil Engineering) and Fuel (Diesel Oil – Coast and Witwatersrand) from the 2012 base year to
the 2000 base year.
Table 3-3 Conversion Factor for Determining the PPI Indices from the 2012 Base Year to the 2000 Base Year
PPI Index 2000 : 2012 2012 : 2000
Plant (Civil) 0.523386 1.910636
Material (Civil) 0.440352 2.270909
Fuel (Diesel Oil – Coast and WW Rand) 0.241392 4.142636
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15 November 2012 Dr H.M.S. Belmonte
3.2.2 CPI - Labour Index
The Labour Index is taken as the Consumer Price Index according to urban area that is published by Stats SA in
their monthly Statistical release P0141 Consumer Price Index publication. The CPI index values are published
for each province in the Consumer Price Index and Percentage Change According to Urban Area Table in
publication P0141 is taken as the Labour Index for each province (as required by the expression in Equation 1).
It should be noted that the format of Stats SA, Statistical release P0141 Consumer Price Index has changed
over the years. This means that the Table in Stats SA, Statistical release P0141.1 Consumer Price Index for
determining the Labour Index values changed. Between January 2001 to December 2006 the data for the
Labour Index could be found in Table 21, titled “Consumer Price Index and percentage change according to
urban area”; then between January 2007 to December 2008 the data for the Labour Index could be found in
Table 7.1, also titled “Consumer Price Index and percentage change according to area”; and then in January
2009 to December 2012 the data for the Labour Index can be found under Geographic Indices and CPI per
Province in Table A, titled “Consumer Price Index: Indices and percentage changes”. Current the CPI data for
the Labour Index can be found under Table 14 titled “CPI - all items, according to area”.
It should be noted that in 2001 the CPI provincial data for the Limpopo Province was presented under Northern
Province. An average of the provincial indices was calculated to provide an indicative Labour Index for the
whole of South Africa. The Labour Index data was collected from Stats SA from January 2001 to June 2013,
this data can be found in Table A–0–1 in Appendix A.
Considering that municipal infrastructure valuations tend to coincide with the municipal financial year, an
average Labour Index for the municipal financial year was determined by averaging the Labour Index values for
each month of the municipal financial year (i.e. July to June). This was calculated for the municipal financial
year from 2001/02 to 2012/13, the result of which are presented in Table 3-4.
Table 3-4 Labour Index Values per Province for each Financial Year (Base Year = 2000)
Municipal Financial Year WC EC NC FS KZN NW GP MP LP ZA
2001/02 110.4 109.8 110.7 107.8 109.6 108.9 108.9 109.9 109.2 109.5
2002/03 122.8 123.1 123.3 116.9 121.8 120.6 121.3 122.5 120.2 121.4
2003/04 123.9 124.8 125.1 119.1 123.8 123.0 122.2 125.1 120.4 123.1
2004/05 127.0 128.3 129.0 122.2 126.3 125.8 125.7 128.8 123.2 126.3
2005/06 131.5 133.6 135.0 127.3 130.6 131.9 130.4 134.4 127.3 131.3
2006/07 140.2 142.2 144.1 134.2 139.7 138.6 139.1 143.9 136.3 139.8
2007/08 154.6 154.9 157.2 145.2 153.5 153.0 153.3 159.2 151.0 153.5
2008/09 171.3 172.9 176.4 160.9 170.6 170.3 168.6 177.7 167.3 170.7
2009/10 180.9 181.2 185.4 169.3 178.0 178.3 177.6 186.9 173.9 179.1
2010/11 187.9 189.0 192.2 176.9 183.7 184.7 184.3 193.9 180.4 185.9
2011/12 198.5 202.0 206.3 188.3 194.7 196.2 194.7 206.0 191.4 197.5
2012/13 208.9 212.5 218.3 198.6 205.6 208.0 205.5 218.0 202.7 208.7
In Table 3-4 the provinces are listed by their initials and the ZA refers to the average value calculated for the
whole of South Africa.
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 12
15 November 2012 Dr H.M.S. Belmonte
3.2.3 PPI - Plant Index, Material Index and Fuel Index
The Plant, Material and Fuel Indices used in Equation 1 are specific Producer Price Index values that are
currently published by Stats SA in their monthly Statistical release P0151 the Contract Price Adjustment
Provisions Work Group Indices, previously they were published by Stats SA in Statistical News Release
P0142.1.
The Plant Index is taken as the “Civil Engineering Plant” index as published in Table 4, titled “Producer Price
Index for Selected Materials’, of the Statistical News Release P0151, previously it was published in Table 12,
titled “Producer Price Index for Selected Materials’, of the Statistical News Release P0142.1.
The Material Index is taken as the “Civil Engineering” index as published under Building and Construction in
Table 3, titled “Producer Price Index for Selected Materials’, of the Statistical News Release P0151, previously it
was published in Table 11, titled “Producer Price Index for Materials used in Certain Industries”, of the Statistical
News Release P0142.1.
The Fuel Index is taken as the “Coast and Witwatersrand” index as published under Diesel Fuel in Table 4, titled
“Producer Price Index for Selected Materials’, of the Statistical News Release P0151, previously it was
published in Table 12, titled “Producer Price Index for Selected Materials”, of the Statistical News Release
P0142.1.
The Plant Index, Material Index and Fuel Index data was collected from Stats SA from January 2001 to June
2013; this data can be found in Table A–0–2 in Appendix A.
Similarly to the Labour Index an average Plant Index, Material Index and Fuel Index for each municipal financial
year was determined by averaging the Labour Index values for each month of the municipal financial year (i.e.
July to June). This was calculated for each municipal financial year, from 2001/02 to 2012/13, the result of
which are presented in Table 3-5.
Table 3-5 Plant Index, Material Index and Fuel Index Values for each Municipal Financial Year
Municipal Financial Year Plant Index Material Index Fuel Index
2001/02 125.8 112.4 121.5
2002/03 145.2 126.3 127.3
2003/04 135.8 137.2 111.1
2004/05 133.0 153.4 144.5
2005/06 135.6 160.3 190.5
2006/07 145.9 170.6 232.5
2007/08 157.4 185.8 336.0
2008/09 183.9 214.7 323.7
2009/10 188.9 212.0 277.0
2010/11 186.9 214.6 333.0
2011/12 188.9 224.0 404.2
2012/13 195.2 231.1 423.2
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 13
15 November 2012 Dr H.M.S. Belmonte
3.3 The Coefficients
The coefficients used in Equation 1 are generally pre-defined and stated in the contract for the civil engineering
works. The sum of the four coefficients are required to add up to unity. The Construction Industry Development
Board and the South African Federation of Engineering Contractors (SAFCEC) publish guidelines for the
coefficients. The coefficients recommended in the February 2009 guidelines obtained from the SAFCEC
website, as published by the CIDB under the “Compiler Guidance Note - Component document: C1.2 - Contract
Data” (CIDB 2009) are presented in Table 3-6.
Table 3-6 Guidelines for the Coefficients for the Contract Price Adjustment as published by the CIDB
No. Work Category Labour Plant Materials Fuel
1 Bulk Earthworks 0.1 0.65 0.05 0.2
2 Earthworks (with culverts and drainage) 0.15 0.5 0.2 0.15
3a New Road Construction: National Provincial Roads 0.15 0.35 0.35 0.15
3b New Road Construction: Urban Roads 0.25 0.15 0.55 0.05
4 Township Roads and Services 0.2 0.25 0.45 0.1
5 Rehabilitation/Resurfacing Works 0.15 0.25 0.5 0.1
6 Routine Maintenance Works 0.45 0.3 0.15 0.1
7 Concrete Works (major structures) 0.3 0.2 0.45 0.05
8 Concrete Works (reservoirs and other general civil engineering works) 0.25 0.15 0.55 0.05
9 Water and Sewer Reticulation 0.15 0.2 0.55 0.1
A simple statistical analysis of the figures presented in Table 3-6 is presented in Table 3-7.
Table 3-7 Statistical Analysis of Coefficient Values in CIDB Guideline
Coefficient Average Median Mode Std. Deviation Min Max
Labour 0.215 0.175 0.15 0.103 0.1 0.45
Plant 0.3 0.25 0.15 0.162 0.15 0.65
Materials 0.38 0.45 0.55 0.184 0.05 0.55
Fuel 0.105 0.1 0.1 0.050 0.05 0.2
From Table 3-6 it can be seen that majority of the work categories (1, 2, 3a, 3b, 4, 5 and 6) can be associated
with Roads and Stormwater infrastructure, although work categories 1 and 6 can also be found in other service
sectors of municipal infrastructure (such as Water, Sanitation, Solid Waste and Operational Building etc.). Work
categories 8 and 9 are readily associated with Water and Sanitation, and work category 7 would be associated
with buildings.
Although the work categories provided by the CIDB coefficients table seem to be dominated by the construction
of roads, which tends to account for only a part of the total municipal infrastructure value, it is possible to identify
work categories that could be grouped into broad classes of municipal infrastructure. In a typical municipality,
the value of the Roads and Stormwater assets generally accounts for around 30% of the total value of the
municipal assets and Water and Sanitation infrastructure assets together can typically account for up to 30% of
the total value of municipal assets. This leaves about 40% of the total value of municipal assets that would be
comprised of Operational Buildings, Community Facilities, Public Amenities, Solid Waste and Electrical
infrastructure assets. Using these guidelines based on the authors experience and understanding of municipal
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 14
15 November 2012 Dr H.M.S. Belmonte
infrastructure and in particularly the typical composition municipal infrastructure in terms of value, a weighting
factor can be assigned to each work category, as shown in Table 3-6, in order to provide a more representative
measure of the value of infrastructure associated with municipalities.
The weighting factor is then applied to each work category and the resultant sum for coefficient components are
then added to determine a suggested labour, plant, materials and fuel coefficient, these results are presented in
Table 3-8.
Table 3-8 Weighting of Coefficients to Represent Typical Composition of Municipal Infrastructure
No. Suggested Weighting Labour Plant Materials Fuel
1 0.07 0.007 0.046 0.004 0.014
2 0.06 0.009 0.030 0.012 0.009
3a 0.06 0.009 0.021 0.021 0.009
3b 0.06 0.015 0.009 0.033 0.003
4 0.05 0.010 0.013 0.023 0.005
5 0.05 0.008 0.013 0.025 0.005
6 0.05 0.023 0.015 0.008 0.005
7 0.26 0.078 0.052 0.117 0.013
8 0.14 0.035 0.021 0.077 0.007
9 0.20 0.030 0.040 0.110 0.020
Total 1 0.223 0.259 0.429 0.090
The coefficients suggested in Table 3-8 were then rounded up and down, based on the statistical trends
presented in Table 3-7, to provide the overall recommended coefficients that will be used to calculate the
Contract Price Adjustment factor, which should be more representative of municipal infrastructure than the
figures provided in the CIDB guideline, the results are presented in Table 3-9.
Table 3-9 Final Recommended Coefficients for Municipal Infrastructure
Weighting Results Statistical Trend Final
Labour 0.223 Lower values 0.20
Plant 0.259 Similar values 0.25
Materials 0.429 Higher values 0.45
Fuel 0.090 Higher values 0.10
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 15
15 November 2012 Dr H.M.S. Belmonte
3.4 Calculating the Contract Price Adjustment
Utilising the values in Table 3-4 for the Labour indices, Table 3-5 for the Plant, Material and Fuel indices, Table
3-9 for the coefficients, and taking the non-adjustment portion to be 0.1 (10%) as per the SAICE guidelines, the
Contract Price Adjustment factor can be determined using the formula in Equation 1. It should be noted that the
baseline year for the calculations will be the municipal financial year of 2000/1. The results of these calculations
are presented in Table 3-10.
Table 3-10 Contract Price Adjustment Factor Calculated from the 2001/2 to the 2012/13 Municipal Financial Year
fCPA, Effective Value
CPA Value
Base Year % Change
Base Year Multiplication Factor
Year to Year % Change
Year to Year Multiplication Factor
2001/2 0.1446 1144.61 144.61 14.5% 1.1446 14.5% 1.1446
2002/3 0.2714 1271.41 271.41 27.1% 1.2714 11.1% 1.1108
2003/4 0.2826 1282.56 282.56 28.3% 1.2826 0.9% 1.0088
2004/5 0.3778 1377.82 377.82 37.8% 1.3778 7.4% 1.0743
2005/6 0.4622 1462.22 462.22 46.2% 1.4622 6.1% 1.0613
2006/7 0.5798 1579.78 579.78 58.0% 1.5798 8.0% 1.0804
2007/8 0.7854 1785.39 785.39 78.5% 1.7854 13.0% 1.1302
2008/9 0.9819 1981.86 981.86 98.2% 1.9819 11.0% 1.11
2009/10 0.9551 1955.14 955.14 95.5% 1.9551 -1.4% 0.9865
2010/11 1.024 2023.98 1023.98 102.4% 2.024 3.5% 1.0352
2011/12 1.1518 2151.76 1151.76 115.2% 2.1518 6.3% 1.0631
2012/13 1.2317 2231.70 1231.70 123.2% 2.2317 3.7% 1.0372
In Table 3-10 the Contract Price Adjustment Factor (fCPA) was calculated using the expression in Equation 1; the
Effective Value is the nominal value for the asset based on the value of the asset in the base municipal financial
year (2000/1), which for this study was taken as a nominal value of 1000; the CPA Value represents the
difference between in the asset value from the previous year (municipal financial year) to the current year
(municipal financial year), taking the value in the base municipal financial year (2000/1) to be 1000; the Base
Year % Change is the percentage difference between the value in the municipal financial year from the baseline
municipal financial year (2000/1); the Base Year Multiplication Factor represents the figure that needs to be
multiplied to an asset value in the baseline municipal financial year (2000/1) in order to determine its value in the
municipal financial year in question; the Year to Year % Change is the percentage change in asset value from
the previous municipal financial year to the current municipal financial year; and the Year to Year Multiplication
Factor represents the figure that needs to be multiplied to an asset value in the previous municipal financial year
to determine it value in the current municipal financial year.
It should be noted that the values provided for the Base Year % Change and the Base Year Multiplication Factor
always refer from the current municipal financial year to the baseline municipal financial year (2000/1). This
means that in order to determine the escalation in value of an asset from the baseline municipal financial year
(2000/1) to the 2009/10 municipal financial year, the value of the asset in the base municipal financial year is
multiplied by the Base Year Multiplication Factor of the 2009/10 municipal financial year to provide the value of
the asset in the 2009/10 municipal financial year. Similarly to de-escalate from the 2007/08 municipal financial
year asset value to the baseline municipal financial year (2000/1), the value of the asset in the 2007/08
municipal financial year is divided by the Base Year Multiplication Factor of the 2007/08 municipal financial year
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 16
15 November 2012 Dr H.M.S. Belmonte
to determine the value of the asset in the baseline municipal financial year (2000/1). This also means that in
order to determine the escalation/de-escalation from one non baseline year to another non baseline year, the
value of the asset must first be determined for the baseline year by dividing the first years asset value by that
years Base Year Multiplication Factor, then the value of the asset in the baseline year must be multiplied by the
Base Year Multiplication Factor of the second year to determine the assets value in the second year.
Alternatively the Year to Year % Change and the Year to Year Multiplication Factor provides the step change
between municipal financial years. Thus in order to determine the escalation from the 2004/05 municipal
financial year to the 2005/06 municipal financial year, the value of the asset in the 2004/05 municipal financial
year is multiplied by the Year to Year Multiplication Factor of the 2005/06 municipal financial year to provide
value of the asset in the 2005/06 municipal financial year. Similarly to de-escalate from the 2010/11 municipal
financial year asset value to the 2009/10 municipal financial year asset value, the value of the asset in the
2010/11 municipal financial year is divided by the Year to Year Multiplication Factor of the 2010/11 municipal
financial year to provide value of the asset in the 2009/10 municipal financial year. This also means that in
order to determine the escalation/de-escalation from one year to several years before or after, the value of the
asset will have to first be escalated/de-escalated each year successively for every year in between the two
years.
Overall the Year to Year % Change best shows how the asset value changes over the municipal financial years,
thus the Year to Year % Change value will be used as the CPA based ‘inflation’ rate for municipal infrastructure,
designated the percentage Contract Price Adjustment (%CPA).
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 17
15 November 2012 Dr H.M.S. Belmonte
4. Comparison of %CPA to CPI and PPI
4.1 Introduction
In order to understand the significance of the value of the %CPA it is best considered in comparison to the
headline inflation rates for the Consumer Price Index (CPI for all items in all urban area in South Africa) and
Producer Price Index (PPI for domestic output of all industry groups in South Africa).
This section details how the CPI and PPI values are determined for each municipal financial year and then a
comparison between the %CPA, CPI and PPI is presented.
4.2 CPI
The headline Consumer Price Index is the CPI determined for all items in all urban area in South Africa, and this
is the figure that is widely reported in the media as the % CPI. The headline Consumer Price Index is published
monthly by Stats SA (in their Statistical release P0141), but historical records are also available from the Stats
SA website (Stats SA 2012).
The headline CPI figures (both the index and the % change) from January 2000 to June 2013 were obtained
from the Stats SA Website. The headline CPI index values obtained were based on the 2008 base year (where
2008 = 100) and these values can be found in Table B–0–1 of Appendix B.
Similarly to the Labour Index, Plant Index, Material Index and Fuel Index that was calculated for each municipal
financial year, the Headline CPI was determined by averaging the %CPI values for each month of the municipal
financial year (i.e. July to June). Thus an annual municipal financial year %CPI was calculated for the municipal
financial years from 2001/2 to 2011/12 along with a multiplication factor and the results are presented in Table
4-1.
Table 4-1 Annual Municipal Financial Year %CPI from 2001/02 to 2012/13
Year Annual %CPI Multiplication Factor
2001/2 5.58% 1.0558
2002/3 10.41% 1.1041
2003/4 1.65% 1.0165
2004/5 2.63% 1.0263
2005/6 3.82% 1.0382
2006/7 5.93% 1.0593
2007/8 9.24% 1.0924
2008/9 10.18% 1.1018
2009/10 5.65% 1.0565
2010/11 3.85% 1.0385
2011/12 5.85% 1.0585
2012/13 5.54% 1.0554
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 18
15 November 2012 Dr H.M.S. Belmonte
4.3 PPI
The headline Producer Price Index is the PPI determined for domestic output of South African industry groups,
and this is the figure that is widely reported in the media as the % PPI. The headline Producer Price Index is
published monthly by Stats SA (in their Statistical release P0151), but historical records are also available from
the Stats SA website (Stats SA 2012).
The headline PPI figures (both the index and the % change) from January 2000 to June 2013 were obtained
from the Stats SA Website. The headline PPI index values obtained were based on the 2000 base year (where
2000 = 100) and these values can be found in Table B–0–2 of Appendix B.
Similarly to the Labour Index, Plant Index, Material Index and Fuel Index that was calculated for each municipal
financial year, the Headline PPI was determined by averaging the %PPI values for each month of the municipal
financial year (i.e. July to June). Thus an annual municipal financial year %PPI was calculated for the municipal
financial years from 2001/02 to 2011/12 along with a multiplication factor and the results are presented in Table
4-2.
Table 4-2 Annual Municipal Financial Year %PPI from 2001/02 to 2012/13
Annual %PPI Multiplication Factor
2001/2 10.53% 1.1053
2002/3 9.01% 1.0901
2003/4 0.75% 1.0075
2004/5 3.16% 1.0316
2005/6 4.84% 1.0484
2006/7 11.09% 1.1109
2007/8 11.47% 1.1147
2008/9 9.14% 1.0914
2009/10 1.36% 1.0136
2010/11 6.76% 1.0676
2011/12 8.64% 1.0864
2012/13 5.28% 1.0528
4.4 Comparison of Inflation Indices
In Section 3.4 the annual (based on the municipal financial year) %CPA was calculated, in Section 4.2 the
annual (based on the municipal financial year) % headline CPI was determined and in Section 4.3 the annual
(based on the municipal financial year) % headline PPI was determined for the 2001/2 to 2012/13 municipal
financial years. These figures are presented in Table 3-1Table 4-3 and provide allow a comparison to be made
of the %CPA against the two headline inflation indices the CPI and PPI.
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 19
15 November 2012 Dr H.M.S. Belmonte
Table 4-3 Comparison between Calculated Annual %CPA, CPI and PPI, based on Municipal Financial Years
Inflation Index CPI PPI %CPA
2001/2 5.58% 10.53% 14.46%
2002/3 10.41% 9.01% 11.08%
2003/4 1.65% 0.75% 0.88%
2004/5 2.63% 3.16% 7.43%
2005/6 3.82% 4.84% 6.13%
2006/7 5.93% 11.09% 8.04%
2007/8 9.24% 11.47% 13.02%
2008/9 10.18% 9.14% 11.00%
2009/10 5.65% 1.36% -1.35%
2010/11 3.85% 6.76% 3.52%
2011/12 5.85% 8.64% 6.31%
2012/13 5.54% 5.28% 3.72%
In general it can be seen in Table 4-3 that the %CPA follows a similar trend to the headline CPI and PPI figures,
although the %CPA is often an extreme value (either above or below) both the CPI and PPI and this is
presented graphically in Figure 4-1. This suggests that there is a sound basis for using the %CPA value rather
than the CPI or PPI values usually used to account for inflation in the value of infrastructure as the %CPA tends
to provide significant variances against the other two measures of inflation.
Figure 4-1 Calculated %CPA, Headline CPI and PPI form the 2001/02 to 2012/13 Municipal Financial Years.
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 20
15 November 2012 Dr H.M.S. Belmonte
5. Concluding Remarks
In this report the formula for calculating the price escalation for civil engineering construction works developed
by the South African Institution of Civil Engineering (SAICE) was utilised to calculate an annual percentage
inflation based on the municipal financial year, the %CPA, for municipal infrastructure that is based on the more
representative inflation in the civil engineering construction industry from 2001/2 to 2012/13.
The %CPA has been compared against the headline CPI and PPI figures (also based on the municipal financial year) and these results are presented in Table 4-3 and Figure 4-1.
It is recommended that when determining the escalation or de-escalation in the value of municipal infrastructure
over the municipal financial years that the %CPA figure is used, rather than the CPI or the PPI, as it will provide
a more representative estimate of the inflation incurred by municipal infrastructure as it is based on the inflation
that would have been experienced in the civil engineering construction industry from which municipal
infrastructure is created.
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 21
15 November 2012 Dr H.M.S. Belmonte
References
CIDB 2009, Compiler Guidance Note - Component document: C1.2 - Contract Data, Construction Industry
Development Board, accessed October 2012, < http://www.cidb.org.za/documents/pdm/toolbox/>
SAICE 2010, General Conditions of Contract for Construction Works, South African Institution of Civil
Engineering, Second Edition 2010
Stats SA 2012, StatsOnline, Statistics South Africa, accessed July 2013, <http://www.statssa.gov.za/>
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 22
15 November 2012 Dr H.M.S. Belmonte
Appendix A – Labour, Plant, Material and Fuel Indices
Table A-0-1 Labour Index values as obtained from Stats SA CPI Index per Province
WC EC NC FS
Province KZN NW GP MP LP ZA
Jan-01 103.4 102.7 104.3 103.2 104.1 103.3 103.6 103.3 103.6 103.5
Feb-01 103.6 102.9 104.5 103.1 104.3 103.6 103.9 103.8 104.0 103.7
Mar-01 104.4 103.8 105.1 103.7 105.1 104.4 104.5 104.5 104.8 104.5
Apr-01 105.0 104.3 105.6 103.9 105.2 104.9 105.1 105.2 105.3 104.9
May-01 105.4 104.8 106.1 104.5 105.6 105.3 105.4 105.7 105.3 105.3
Jun-01 105.8 105.4 106.7 104.9 106.1 105.5 105.8 106.0 106.0 105.8
Jul-01 107.0 105.9 107.4 105.9 106.2 105.9 105.7 106.0 105.9 106.2
Aug-01 106.8 105.8 107.3 105.6 105.9 105.9 105.6 106.1 105.9 106.1
Sep-01 107.1 106.2 107.5 105.6 106.2 106.2 105.7 106.3 106.1 106.3
Oct-01 107.2 106.3 107.6 105.5 106.4 106.5 105.6 106.3 106.0 106.4
Nov-01 107.7 106.7 108.0 106.2 107.0 106.7 106.0 106.8 106.5 106.8
Dec-01 108.3 107.8 108.8 106.2 107.8 107.0 106.6 107.5 106.9 107.4
Jan-02 109.9 109.3 110.7 107.5 109.4 108.2 108.5 109.7 108.5 109.1
Feb-02 111.3 110.6 112.0 108.5 110.8 109.9 109.8 111.1 110.0 110.4
Mar-02 112.8 112.2 113.0 109.3 112.1 111.0 111.0 112.4 111.4 111.7
Apr-02 114.6 114.5 114.7 110.6 113.7 112.5 113.1 114.6 113.7 113.6
May-02 115.4 115.5 115.3 111.1 114.3 113.1 114.1 115.3 114.3 114.3
Jun-02 116.4 116.5 116.5 111.8 115.3 113.7 115.2 116.5 115.3 115.2
Jul-02 118.7 118.5 118.4 113.5 117.1 115.9 116.9 117.9 116.5 117.0
Aug-02 119.5 119.5 119.7 114.4 118.2 117.0 117.7 118.7 117.2 118.0
Sep-02 120.7 121.0 121.1 114.8 119.5 117.6 119.1 119.5 117.9 119.0
Oct-02 122.6 122.6 123.0 116.2 121.1 119.4 121.2 121.0 119.9 120.8
Nov-02 123.3 123.2 123.6 116.7 121.8 119.7 121.9 122.2 120.1 121.4
Dec-02 123.9 123.4 123.9 116.6 122.1 119.4 122.4 122.5 120.3 121.6
Jan-03 125.3 124.7 125.4 117.8 123.4 120.9 123.6 123.3 121.5 122.9
Feb-03 125.2 124.5 125.5 117.7 123.2 120.8 124.3 123.4 121.7 122.9
Mar-03 123.9 124.7 124.5 118.8 123.7 123.4 122.1 125.1 121.8 123.1
Apr-03 123.2 125.0 124.8 119.1 123.9 124.1 122.5 125.9 122.3 123.4
May-03 124.1 124.9 124.8 118.7 124.1 124.3 122.2 125.5 122.0 123.4
Jun-03 123.7 125.0 124.4 118.7 123.8 124.8 121.7 124.9 121.6 123.2
Jul-03 123.7 124.5 124.9 118.8 124.0 124.3 121.9 125.3 121.5 123.2
Aug-03 124.0 124.6 125.4 119.2 124.3 124.5 122.5 126.2 121.7 123.6
Sep-03 123.8 124.3 125.1 118.7 123.4 123.9 122.2 125.4 120.8 123.1
Oct-03 123.1 123.6 124.6 118.4 122.8 122.7 121.5 124.2 119.7 122.3
Nov-03 122.3 122.6 123.6 117.7 122.4 121.5 120.7 122.9 118.4 121.3
Dec-03 122.5 123.1 123.6 117.5 122.3 121.5 120.8 122.8 118.5 121.4
Jan-04 123.7 124.3 124.8 118.5 123.1 121.9 121.6 124.0 119.2 122.3
Feb-04 124.3 125.1 124.8 119.1 123.5 122.0 122.2 124.7 119.8 122.8
Mar-04 125.1 126.2 125.6 119.9 124.1 123.0 123.0 125.9 121.0 123.8
Apr-04 124.9 126.1 126.2 120.4 124.7 123.5 123.3 126.5 121.4 124.1
May-04 124.8 126.4 126.5 120.5 125.1 123.7 123.2 126.7 121.5 124.3
Jun-04 125.1 126.8 126.5 120.6 125.3 123.8 123.7 127.0 121.6 124.5
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 23
15 November 2012 Dr H.M.S. Belmonte
Jul-04 125.5 126.9 127.1 120.8 125.1 124.3 124.3 127.6 122.2 124.9
Aug-04 125.4 126.6 127.0 120.2 124.9 123.4 124.1 127.3 121.9 124.5
Sep-04 125.2 126.6 127.2 120.3 124.8 123.7 124.2 127.0 121.8 124.5
Oct-04 126.0 127.2 127.6 121.0 125.5 124.8 124.7 127.4 122.0 125.1
Nov-04 126.5 128.1 128.4 122.0 126.3 125.8 125.3 128.0 122.5 125.9
Dec-04 126.2 128.2 128.6 121.7 125.7 125.3 125.1 127.8 122.6 125.7
Jan-05 127.0 128.5 129.4 122.5 126.4 125.7 125.5 128.5 123.1 126.3
Feb-05 127.2 128.7 129.5 122.6 126.4 125.7 125.6 128.5 123.2 126.4
Mar-05 128.3 129.3 130.5 123.4 127.6 126.9 127.0 130.0 124.5 127.5
Apr-05 129.1 129.9 131.1 124.1 128.1 128.1 127.5 130.9 125.1 128.2
May-05 129.0 130.1 131.2 124.1 127.8 128.1 127.6 130.9 124.9 128.2
Jun-05 128.8 129.4 130.6 123.3 127.4 127.7 127.4 131.2 124.8 127.8
Jul-05 130.0 130.8 133.1 124.9 128.3 129.6 128.7 132.6 125.6 129.3
Aug-05 130.6 131.3 133.6 125.3 128.4 130.3 129.2 133.1 125.8 129.7
Sep-05 130.6 131.8 133.8 125.8 129.2 130.7 129.4 133.3 126.0 130.1
Oct-05 130.8 132.1 133.6 125.7 129.5 131.1 129.6 133.6 126.1 130.2
Nov-05 130.8 132.1 133.2 125.6 129.3 130.5 129.6 133.6 125.9 130.1
Dec-05 130.8 132.1 133.4 126.2 129.6 131.5 129.6 133.7 125.8 130.3
Jan-06 131.8 133.2 135.1 127.4 130.8 132.2 130.3 134.7 126.6 131.3
Feb-06 131.4 134.7 135.3 127.9 131.5 132.4 130.3 134.2 127.9 131.7
Mar-06 132.0 135.3 136.0 128.9 131.9 133.0 130.9 135.0 128.6 132.4
Apr-06 132.4 135.8 136.5 129.0 132.3 133.0 131.7 135.5 128.8 132.8
May-06 133.0 136.2 137.5 129.6 133.0 133.7 132.5 136.5 129.7 133.5
Jun-06 134.2 137.3 138.7 130.8 133.9 134.8 133.4 137.1 130.9 134.6
Jul-06 135.5 138.6 140.0 132.1 135.2 135.6 134.8 138.4 131.7 135.8
Aug-06 136.6 140.1 140.9 133.2 136.2 136.4 135.7 139.1 132.7 136.8
Sep-06 137.1 140.2 141.7 133.4 136.7 136.6 135.9 140.8 133.5 137.3
Oct-06 137.7 140.7 142.3 133.7 137.5 137.3 136.2 141.9 133.9 137.9
Nov-06 137.7 140.7 142.3 133.8 137.5 137.0 136.0 141.9 134.2 137.9
Dec-06 138.4 141.2 142.8 133.8 137.9 137.2 136.5 142.5 134.4 138.3
Jan-07 141.3 142.7 145.0 133.2 140.9 138.0 140.3 144.8 136.3 140.3
Feb-07 141.3 142.3 144.9 133.2 140.6 137.7 140.0 144.6 136.7 140.1
Mar-07 142.5 143.5 146.1 134.6 141.8 139.3 141.3 146.2 138.3 141.5
Apr-07 143.9 144.7 146.6 135.7 142.8 142.3 143.3 147.9 140.0 143.0
May-07 144.6 145.5 147.8 136.2 143.8 142.8 144.2 149.0 141.4 143.9
Jun-07 145.7 146.5 148.9 137.1 144.9 143.5 145.3 149.7 142.1 144.9
Jul-07 147.6 147.5 150.1 138.8 146.5 145.0 146.8 150.9 143.3 146.3
Aug-07 148.5 149.0 151.1 139.6 147.3 145.7 147.6 152.3 144.2 147.3
Sep-07 149.7 150.6 152.1 140.6 148.4 147.6 148.2 153.7 145.2 148.5
Oct-07 151.0 151.8 153.5 141.7 149.6 148.7 149.8 154.9 147.1 149.8
Nov-07 151.7 152.5 154.5 142.5 150.6 149.4 150.2 156.5 147.9 150.6
Dec-07 153.0 153.0 155.1 143.3 152.2 151.1 151.4 157.6 149.3 151.8
Jan-08 154.7 155.5 157.3 145.7 153.6 153.2 153.3 159.5 151.7 153.8
Feb-08 155.4 155.5 157.8 145.9 154.4 153.9 153.9 159.9 152.8 154.4
Mar-08 157.6 157.1 160.3 147.9 156.2 156.8 156.4 162.8 155.1 156.7
Apr-08 160.3 160.1 163.0 150.5 159.3 159.8 158.7 165.3 157.5 159.4
May-08 161.7 162.2 164.8 152.1 160.8 161.3 160.4 167.8 158.0 161.0
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 24
15 November 2012 Dr H.M.S. Belmonte
Jun-08 163.9 164.5 166.5 153.8 162.7 163.7 162.5 169.6 160.0 163.0
Jul-08 168.0 168.4 169.9 156.5 166.6 166.3 166.1 173.5 163.7 166.6
Aug-08 169.5 170.8 173.3 158.3 168.2 168.5 167.1 175.2 164.7 168.4
Sep-08 170.0 171.8 174.5 159.1 168.6 169.1 167.1 175.4 165.4 169.0
Oct-08 170.3 171.8 175.9 159.6 169.2 169.4 167.2 176.1 166.1 169.5
Nov-08 170.5 171.7 176.4 159.7 169.4 169.3 167.7 176.1 167.2 169.8
Dec-08 169.1 170.1 174.4 158.7 168.1 167.9 165.8 174.4 165.1 168.2
Jan-09 169.3 171.4 174.7 159.5 169.7 168.1 166.3 176.1 166.1 169.0
Feb-09 170.9 173.2 176.8 161.3 171.0 170.2 168.4 178.6 167.3 170.9
Mar-09 173.5 175.4 178.8 163.3 173.0 173.3 170.8 180.7 169.6 173.1
Apr-09 174.4 176.4 180.3 164.4 173.9 173.4 171.6 181.7 170.2 174.0
May-09 174.9 176.9 180.5 164.7 174.3 174.1 172.3 182.3 170.9 174.5
Jun-09 175.5 177.4 181.4 165.3 174.8 174.2 172.9 182.3 170.9 175.0
Jul-09 177.6 178.8 183.4 167.0 176.1 176.2 175.0 184.4 171.7 176.7
Aug-09 178.1 179.3 183.9 167.5 176.2 176.8 175.7 184.9 172.3 177.2
Sep-09 179.1 180.0 184.6 167.8 176.7 177.0 176.2 185.6 172.5 177.7
Oct-09 179.3 180.2 184.6 167.7 176.9 176.8 176.2 185.9 172.3 177.7
Nov-09 179.3 180.0 184.6 167.8 176.7 176.7 176.2 185.7 173.1 177.8
Dec-09 180.3 180.3 184.7 168.3 177.2 177.0 176.3 185.9 172.9 178.1
Jan-10 180.8 180.6 184.6 168.7 177.8 177.5 177.0 186.6 173.4 178.6
Feb-10 181.4 181.5 185.4 170.0 178.5 179.0 178.1 187.6 174.4 179.5
Mar-10 183.4 183.0 186.6 171.1 179.8 180.1 179.7 188.8 176.3 181.0
Apr-10 183.9 183.5 187.1 171.7 180.0 180.4 179.9 189.1 176.0 181.3
May-10 184.1 183.8 187.8 171.8 180.3 180.9 180.2 189.6 176.1 181.6
Jun-10 183.9 183.9 187.8 171.8 180.3 180.8 180.2 189.3 176.1 181.6
Jul-10 184.7 184.9 189.2 172.9 181.1 181.6 181.5 190.5 177.4 182.6
Aug-10 184.9 185.9 189.2 173.5 181.3 181.7 181.5 190.8 177.6 182.9
Sep-10 185.0 186.6 189.7 174.3 181.1 181.9 181.7 191.3 177.4 183.2
Oct-10 185.5 186.7 190.0 174.8 181.4 182.1 182.0 191.8 178.4 183.6
Nov-10 185.7 186.7 190.0 174.8 181.9 182.5 182.5 191.6 178.0 183.8
Dec-10 186.2 186.9 189.8 175.1 182.1 182.5 182.8 191.8 179.0 184.0
Jan-11 187.0 188.4 191.5 176.5 183.0 183.8 183.4 193.0 179.6 185.2
Feb-11 188.2 189.5 192.4 177.4 184.2 185.3 184.6 194.5 179.5 186.2
Mar-11 190.8 191.7 194.9 179.5 186.0 187.4 186.8 196.9 182.8 188.5
Apr-11 191.3 192.2 196.1 180.6 186.5 188.1 187.2 197.6 183.8 189.3
May-11 192.3 193.3 196.8 181.4 187.4 188.9 188.3 198.6 184.9 190.2
Jun-11 192.9 195.2 197.3 181.7 188.4 190.2 189.1 199.1 186.2 191.1
Jul-11 194.2 197.0 200.0 183.9 189.9 191.7 190.7 200.9 186.5 192.8
Aug-11 194.7 197.3 201.5 184.2 190.4 192.3 191.1 201.1 186.8 193.3
Sep-11 195.7 198.6 202.7 185.1 190.8 192.6 191.5 201.8 187.8 194.1
Oct-11 196.5 199.9 204.4 186.3 192.3 194.1 192.7 203.5 189.2 195.4
Nov-11 196.9 200.6 205.1 187.0 192.9 194.3 193.0 203.8 189.7 195.9
Dec-11 197.2 201.3 204.6 187.6 194.1 194.7 193.3 204.6 190.5 196.4
Jan-12 198.0 202.2 206.6 188.6 194.7 196.0 194.5 206.0 192.0 197.6
Feb-12 199.2 202.9 207.5 189.6 195.7 197.2 195.6 207.5 192.7 198.7
Mar-12 201.3 204.7 209.9 191.0 198.1 199.6 197.7 209.9 194.7 200.8
Apr-12 202.1 205.9 210.9 191.9 198.8 200.3 198.5 210.4 194.7 201.5
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 25
15 November 2012 Dr H.M.S. Belmonte
May-12 202.5 206.4 211.0 192.0 199.0 200.1 198.7 210.6 195.5 201.7
Jun-12 203.1 206.7 211.0 192.2 199.3 201.4 199.3 211.4 196.4 202.3
Jul-12 203.6 206.9 212.2 192.8 199.9 201.6 199.8 211.9 197.2 202.9
Aug-12 204.1 207.4 212.2 193.3 200.3 202.6 200.3 212.6 197.4 203.3
Sep-12 205.7 209.2 214.8 195.1 202.2 205.3 201.9 214.5 199.3 205.3
Oct-12 207.1 210.6 216.1 196.5 203.7 206.8 203.4 216.1 200.9 206.8
Nov-12 207.6 211.8 217.5 197.1 204.3 207.1 203.7 216.5 201.4 207.4
Dec-12 208.2 212.0 217.8 198.2 205.0 207.3 204.0 217.3 202.3 208.0
Jan-13 208.6 212.4 218.7 198.6 205.2 208.1 204.8 218.2 203.4 208.7
Feb-13 210.1 213.9 219.6 200.0 207.2 209.8 207.3 220.1 204.0 210.2
Mar-13 212.6 216.0 221.8 202.2 209.7 211.2 209.9 221.9 206.2 212.4
Apr-13 213.4 216.8 222.8 202.6 210.3 212.2 210.5 222.5 207.2 213.2
May-13 212.8 216.2 222.4 202.6 209.7 211.6 209.9 222.3 206.8 212.7
Jun-13 213.4 216.8 223.1 203.6 210.1 212.0 210.7 222.5 206.8 213.2
The CPI figures presented in Table A-0-1 are for the Consumer Price Index per Province in South Africa
sourced from Stats SA Consumer Price Index P0141 Publications. The Indices in Table A-0-1 are calculated
using the base year of 2000, where 2000 = 100.
Table A-0-2 Plant Index, Material Index and Fuel Index values as obtained from Stats SA PPI
Month Plant Index Material Index Fuel Index
Jan-01 104.7 103.7 117.7
Feb-01 108.2 103.6 114.1
Mar-01 108.2 103.7 111.8
Apr-01 108.2 103.7 112.1
May-01 112.2 105.1 116.7
Jun-01 112.2 105.0 116.3
Jul-01 112.2 107.9 116.1
Aug-01 114.3 108.4 116.1
Sep-01 114.3 108.6 116.0
Oct-01 114.3 108.8 118.3
Nov-01 119.8 108.7 117.9
Dec-01 119.8 108.9 115.4
Jan-02 119.8 113.2 126.9
Feb-02 135.8 113.4 124.4
Mar-02 135.8 113.5 119.1
Apr-02 136.1 118.2 128.8
May-02 143.9 119.0 128.5
Jun-02 143.9 119.9 130.3
Jul-02 144.2 120.6 128.1
Aug-02 144.9 120.7 127.0
Sep-02 144.9 120.9 131.0
Oct-02 145.5 125.2 140.4
Nov-02 146.8 125.6 144.3
Dec-02 146.5 125.5 136.1
Jan-03 146.2 128.3 121.2
Feb-03 147.2 129.6 124.3
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 26
15 November 2012 Dr H.M.S. Belmonte
Mar-03 146.9 129.4 133.0
Apr-03 146.9 129.8 138.5
May-03 141.4 129.7 105.8
Jun-03 141.4 130.5 97.5
Jul-03 140.8 131.7 108.0
Aug-03 138.8 132.7 103.9
Sep-03 138.5 132.7 106.4
Oct-03 138.5 132.9 103.7
Nov-03 135.7 134.7 108.4
Dec-03 135.7 134.4 106.6
Jan-04 135.7 137.3 103.4
Feb-04 133.8 137.6 117.6
Mar-04 133.8 137.6 112.1
Apr-04 133.9 142.2 115.9
May-04 132.4 147.0 117.2
Jun-04 132.1 145.1 130.1
Jul-04 132.1 146.3 122.0
Aug-04 133.1 147.6 126.6
Sep-04 133.4 147.6 139.2
Oct-04 133.1 150.8 148.0
Nov-04 133.1 153.9 158.0
Dec-04 133.1 153.6 145.4
Jan-05 133.4 155.2 128.7
Feb-05 132.2 156.7 130.2
Mar-05 132.5 156.8 143.0
Apr-05 132.5 157.2 165.9
May-05 133.8 157.5 167.7
Jun-05 133.8 157.6 158.9
Jul-05 134.1 159.1 183.3
Aug-05 134.7 159.3 188.0
Sep-05 134.7 159.3 187.2
Oct-05 134.7 159.5 193.1
Nov-05 135.5 159.5 192.9
Dec-05 135.5 160.0 178.0
Jan-06 135.5 161.0 176.9
Feb-06 135.4 161.1 176.7
Mar-06 135.4 161.0 174.8
Apr-06 135.8 161.1 194.2
May-06 137.2 161.4 212.3
Jun-06 138.5 161.6 228.5
Jul-06 138.8 165.9 247.8
Aug-06 141.4 167.3 264.2
Sep-06 141.7 167.5 254.5
Oct-06 143.3 167.6 237.7
Nov-06 146.4 167.9 234.6
Dec-06 146.4 167.9 217.6
Jan-07 146.5 171.6 211.6
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 27
15 November 2012 Dr H.M.S. Belmonte
Feb-07 148.3 172.5 203.9
Mar-07 148.0 172.5 209.3
Apr-07 148.9 172.8 224.2
May-07 150.3 176.4 240.3
Jun-07 150.3 176.7 243.7
Jul-07 150.3 179.7 252.0
Aug-07 152.1 178.1 255.7
Sep-07 152.1 178.7 263.8
Oct-07 152.1 179.5 277.1
Nov-07 153.7 181.3 272.5
Dec-07 153.7 181.9 301.7
Jan-08 153.7 184.1 304.1
Feb-08 161.4 186.8 321.6
Mar-08 161.4 187.8 367.6
Apr-08 161.4 191.0 424.9
May-08 168.3 199.0 471.0
Jun-08 168.3 201.8 519.9
Jul-08 168.3 203.9 511.9
Aug-08 175.4 217.3 419.9
Sep-08 175.4 218.8 394.3
Oct-08 175.4 219.6 377.4
Nov-08 184.8 219.2 336.8
Dec-08 184.8 216.6 274.3
Jan-09 184.8 219.7 286.5
Feb-09 193.0 215.7 271.3
Mar-09 193.0 214.8 253.5
Apr-09 193.0 213.3 250.2
May-09 189.2 209.0 251.1
Jun-09 189.2 208.9 256.8
Jul-09 189.2 211.3 266.2
Aug-09 190.9 210.1 262.1
Sep-09 190.9 209.8 272.6
Oct-09 190.9 209.5 257.7
Nov-09 188.1 209.8 262.2
Dec-09 188.1 209.8 275.4
Jan-10 188.1 212.5 269.1
Feb-10 188.0 213.0 276.4
Mar-10 188.9 213.0 280.4
Apr-10 188.9 212.8 296.5
May-10 187.6 215.4 304.4
Jun-10 187.4 216.7 300.5
Jul-10 187.2 214.1 296.0
Aug-10 186.7 212.6 293.1
Sep-10 186.7 212.6 290.6
Oct-10 186.8 213.7 291.3
Nov-10 187.5 212.9 299.0
Dec-10 185.8 213.1 309.4
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 28
15 November 2012 Dr H.M.S. Belmonte
Jan-11 184.2 215.4 321.0
Feb-11 186.6 215.9 350.9
Mar-11 187.3 217.4 374.2
Apr-11 187.5 216.0 396.8
May-11 187.5 215.7 392.3
Jun-11 188.8 216.1 380.9
Jul-11 189.2 219.0 378.3
Aug-11 189.3 219.7 377.7
Sep-11 189.1 220.2 377.7
Oct-11 187.6 221.6 392.4
Nov-11 187.7 223.2 413.1
Dec-11 188.4 223.6 419.9
Jan-12 188.6 224.5 409.3
Feb-12 189.4 226.6 409.0
Mar-12 188.2 228.2 414.2
Apr-12 188.6 227.9 422.2
May-12 190.3 226.9 426.6
Jun-12 190.8 226.8 410.3
Jul-12 191.0 227.1 378.6
Aug-12 191.5 227.9 388.0
Sep-12 192.5 227.5 412.7
Oct-12 192.5 226.8 433.0
Nov-12 193.2 227.5 439.3
Dec-12 193.7 228.2 435.9
Jan-13 195.5 231.2 426.7
Feb-13 195.8 232.1 432.1
Mar-13 197.9 234.1 449.9
Apr-13 198.1 235.9 433.7
May-13 199.7 236.6 420.5
Jun-13 201.4 238.2 427.5
The PPI figures presented in Table A-0-2 are for the Producer Price Index for “Civil Engineering Plant”, “Building
and Construction - Civil Engineering”, and “Diesel Fuel - Coast and Witwatersrand” indices sourced from Stats
SA Consumer Price Index P0142 Publications. The Indices in Table A-0-2 are calculated using the base year of
2000, where 2000 = 100.
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 29
15 November 2012 Dr H.M.S. Belmonte
Appendix B – Headline CPI and PPI
Table B-0-1 Headline Consumer Price Index: Index numbers and Annual Percentage Change on a Monthly Basis
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2000 Index 60.6 60.4 61.0 61.8 62.1 62.4 63.0 63.3 63.6 63.8 63.9 64.1
% 2.7 2.4 3.4 4.6 5.1 5.1 6.1 6.9 7.1 7.0 7.0 7.0
2001 Index 64.9 65.1 65.5 65.8 66.1 66.4 66.3 66.2 66.4 66.3 66.6 67.0
% 7.1 7.8 7.4 6.5 6.4 6.4 5.2 4.6 4.4 3.9 4.2 4.5
2002 Index 68.1 68.9 69.6 70.7 71.2 71.7 72.7 73.1 73.8 74.9 75.2 75.3
% 4.9 5.8 6.3 7.4 7.7 8.0 9.7 10.4 11.1 13.0 12.9 12.4
2003 Index 76.0 75.9 76.7 76.9 76.8 76.5 76.5 76.8 76.6 76.1 75.5 75.6
% 11.6 10.2 10.2 8.8 7.9 6.7 5.2 5.1 3.8 1.6 0.4 0.4
2004 Index 76.1 76.5 77.0 77.1 77.2 77.4 77.7 77.6 77.6 77.9 78.3 78.1
% 0.1 0.8 0.4 0.3 0.5 1.2 1.6 1.0 1.3 2.4 3.7 3.3
2005 Index 78.4 78.5 79.3 79.8 79.8 79.6 80.3 80.6 80.9 81.0 80.9 80.9
% 3.0 2.6 3.0 3.5 3.4 2.8 3.3 3.9 4.3 4.0 3.3 3.6
2006 Index 81.5 81.6 82.0 82.4 82.9 83.5 84.3 85.0 85.2 85.4 85.3 85.6
% 4.0 3.9 3.4 3.3 3.9 4.9 5.0 5.5 5.3 5.4 5.4 5.8
2007 Index 86.4 86.3 87.0 88.1 88.6 89.4 90.3 90.7 91.3 92.1 92.5 93.3
% 6.0 5.8 6.1 6.9 6.9 7.1 7.1 6.7 7.2 7.8 8.4 9.0
2008 Index 94.4 94.7 96.2 97.9 99.0 100.3 102.4 103.1 103.3 103.3 103.4 102.2
% 9.3 9.8 10.6 11.1 11.7 12.2 13.4 13.7 13.1 12.1 11.8 9.5
2009 Index 103.1 104.3 105.7 106.2 106.6 107.0 108.2 108.5 108.9 108.9 108.9 109.2
% 8.1 8.6 8.5 8.4 8.0 6.9 6.7 6.4 6.1 5.9 5.8 6.3
2010 Index 109.5 110.2 111.1 111.3 111.5 111.5 112.2 112.3 112.4 112.6 112.8 113.0
% 6.2 5.7 5.1 4.8 4.6 4.2 3.7 3.5 3.2 3.4 3.6 3.5
2011 Index 113.5 114.3 115.7 116.0 116.6 117.1 118.1 118.3 118.8 119.4 119.7 119.9
% 3.7 3.7 4.1 4.2 4.6 5.0 5.3 5.3 5.7 6.0 6.1 6.1
2012 Index 120.6 121.3 122.6 123.1 123.2 123.5 123.9 124.2 125.3 126.1 126.4 126.7
% 6.3 6.1 6.0 6.1 5.7 5.5 4.9 5.0 5.5 5.6 5.6 5.7
2013 Index 127.1 128.3 129.9 130.4 130.0 130.4
% 5.4 5.9 5.9 5.9 5.6 5.5
The Headline CPI figures presented in Table B-0-1 are for the Consumer Price Index for all items in all urban
area in South Africa sourced from Stats SA Consumer Price Index P0141 Historic Publications. The Indices in
Table B-0-1 are calculated using the base year of 2008, where 2008 = 100.
Calculating the Annual Escalation Adjustment for Municipal Infrastructure 30
15 November 2012 Dr H.M.S. Belmonte
Table B-0-2 Headline Producer Price Index: Index numbers and Annual Percentage Change on a Monthly Basis
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2000 Index 96.3 96.9 97.2 98.8 99.3 99.7 100.2 101.1 101.7 102.2 103.1 103.4
% 5.5 5.4 4.6 6.5 5.8 6.5 6.5 7.0 7.7 7.8 8.3 8.2
2001 Index 103.8 104.4 104.6 105.6 106.5 107.2 107.8 108.7 108.6 110.1 111.6 112.1
% 7.8 7.7 7.6 6.9 7.3 7.5 7.6 7.5 6.8 7.7 8.2 8.4
2002 Index 115.4 117.9 118.7 120.7 121.6 122.2 123.3 124.7 124.3 125.1 125.4 125.3
% 11.2 12.9 13.5 14.3 14.2 14.0 14.4 14.7 14.5 13.6 12.4 11.8
2003 Index 124.5 124.9 124.9 124.8 123.8 125.3 126.4 126.0 124.4 124.4 123.9 124.2
% 7.9 5.9 5.2 3.4 1.8 2.5 2.5 1.0 0.1 -0.6 -1.2 -0.9
2004 Index 124.7 125.5 125.5 126.6 126.9 129.1 129.1 129.4 128.7 129.3 129.2 128.7
% 0.2 0.5 0.5 1.4 2.5 3.0 2.1 2.7 3.5 3.9 4.3 3.6
2005 Index 128.2 128.8 129.5 130.4 131.0 133.0 134.5 135.0 134.1 134.1 134.8 134.9
% 2.8 2.6 3.2 3.0 3.2 3.0 4.2 4.3 4.2 3.7 4.3 4.8
2006 Index 134.8 134.9 135.6 136.9 138.7 142.6 145.1 148.3 147.2 148.3 149.5 149.1
% 5.1 4.7 4.7 5.0 5.9 7.2 7.9 9.9 9.8 10.6 10.9 10.5
2007 Index 149.3 150.2 152.5 154.9 157.0 160.5 161.9 162.5 160.9 162.3 162.9 163.3
% 10.8 11.3 12.5 13.1 13.2 12.6 11.6 9.6 9.3 9.4 9.0 9.5
2008 Index 164.9 167.2 170.6 174.1 182.7 187.5 192.5 193.6 186.7 185.8 183.4 181.3
% 10.4 11.3 11.9 12.4 16.4 16.8 18.9 19.1 16.0 14.5 12.6 11.0
2009 Index 180.0 179.4 179.6 179.2 177.2 179.9 185.2 185.8 179.8 179.7 181.2 182.5
% 9.2 7.3 5.3 2.9 -3.0 -4.1 -3.8 -4.0 -3.7 -3.3 -1.2 0.7
2010 Index 184.9 185.6 186.2 189.0 189.3 196.8 199.4 200.2 192.0 191.2 192.5 193.0
% 2.7 3.5 3.7 5.5 6.8 9.4 7.7 7.8 6.8 6.4 6.2 5.8
2011 Index 195.1 198.0 199.7 201.5 202.4 211.4 217.2 219.4 212.2 211.5 212.0 211.9
% 5.5 6.7 7.3 6.6 6.9 7.4 8.9 9.6 10.5 10.6 10.1 9.8
2012 Index 212.5 214.4 214.1 214.8 215.8 225.4 229.0 230.5 221.2 222.5 223.1 222.9
% 8.9 8.3 7.2 6.6 6.6 6.6 5.4 5.1 4.2 5.2 5.2 5.2
2013 Index 226.5 227.8 229.8 230.7 231.3 233.1
% 5.8 5.4 5.7 5.4 4.9 5.9
The Headline PPI figures presented in Table B-0-2, between 2000 and 2012 are for the Producer Price Index for
Domestic Output of South African industry groups (previous Headline PPI) sourced from Stats SA Producer
Price Index P0142 Historic Publications, from 2013 Final Manufactured Goods is the new headline PPI. The
Indices in Table B-0-2 are calculated using the base year of 2000, where 2000 = 100.
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