In 2016, the ABS proposed annually re-weighting the Australian Consumer Price Index (CPI) using Household Final Consumption Expenditure (HFCE) data from the Australian National Accounts. This proposal was described in the information paper Increasing the Frequency of CPI Expenditure Class Weight Updates (cat. no. 6401.0.60.002). The research presented in this paper found empirical support for the theory that higher frequency re-weighting of the CPI at the expenditure class (EC) level better captures consumers’ substitution effects. Annually re-weighting the CPI using HFCE data also ensures greater coherence across macroeconomic statistics; and improved alignment with international standards.
The ABS consulted broadly in the development of the proposal and methods outlined in the 2016 paper. Development consultation included an external review by Mr Paul McCarthy, an international Price Statistics and National Accounts expert. Following the release of the 2016 paper, the ABS undertook an extensive stakeholder engagement program, including a call for public submissions. The ABS also conducted numerous bilateral and multilateral consultations with key stakeholders, including: the Reserve Bank of Australia; the Treasury; Department of Social Services; Department of Finance; and State Treasuries.
Stakeholders and public submissions were supportive of the ABS proposal and methodology to annually re-weight the Australian CPI. Noting this support, the ABS will:
- update EC level weights for the CPI and Selected Living Cost Indexes (SLCIs) in the December quarter 2017. The principal data source for updating the weights in the December quarter 2017 will be the 2015-16 Household Expenditure Survey (HES) data; and
- update EC level weights in the CPI annually each December quarter. The principal data source for updating the weights for the inter-HES years will be HFCE data from the National Accounts. HES data will continue to be used in the years that it is conducted.
Consultation with key stakeholders raised additional topics for further ABS research. These include:
- methods and data sources to more frequently re-weight the SLCIs; and
- documenting methods to calculate contributions to percentage change with annually re-weighted indexes.
Methods to calculate contributions to change for annually re-weighted indexes can be found in the Appendix.
Additionally, in the coming months the ABS will:
- publish an information paper in early November 2017 containing the new weights that will be implemented in the CPI and SLCIs in the December quarter 2017. This paper will also estimate the amount of upper level substitution bias present in the Australian CPI for the period 2011 to 2017; and
- investigate methods for more frequently updating the weights of the SLCIs. This work will be published following the December quarter 2017 re-weight of the CPI and SLCIs.
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