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1301.0 - Year Book Australia, 2006  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 20/01/2006   
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Contents >> Chapter 28 - Prices >> Consumer price index (CPI)

CONSUMER PRICE INDEX

The description of the CPI commonly adopted by users is in terms of its perceived uses; hence the frequent references to the CPI as a measure of inflation, a measure of changes in purchasing power, or a measure of changes in the cost of living. In practice, the CPI is a measure of changes, over time, in the prices of a basket of goods and services acquired by households in the eight capital cities in Australia. As such, the CPI has been designed as a general measure of price inflation for the household sector in Australia.

The simplest way of thinking about the CPI is to imagine a basket of goods and services of the kind typically acquired by Australian households. As prices vary, the total cost of this basket will also vary. The CPI is simply a measure of the changes in the cost of this basket as the prices of items in it change.

The price of the CPI basket in the reference base period is assigned a value of 100.0 and the prices in other periods are expressed as percentages of the price in the base period. For example, if the price of the basket had increased by 35% since the base year, then the index would read 135.0. Similarly, if the price had fallen by 5% since the base year, the index would stand at 95.0.

Households acquire a large number of different goods and services. It is not practical or necessary to price all the goods and services acquired by the CPI population group. Many related items are subject to similar price changes and households acquire more of some items than others. Rather, the items selected for pricing in the CPI are the more significant ones and are likely to have price movements that are representative of a wider range of goods and services.

From the September quarter 2005 onwards, the total basket is divided into the following eleven major commodity groups: food; alcohol and tobacco; clothing and footwear; housing; household contents and services; health; transportation; communication; recreation; education; and financial and insurance services. These groups are, in turn, divided into 33 subgroups and the subgroups into 90 expenditure classes.

In addition to the aggregate 'All groups' index, indexes are also compiled and published for each of the groups, subgroups and expenditure classes for each state capital city, Darwin and Canberra. National indexes are constructed as the weighted average of the indexes compiled for each of the eight capital cities.

The 15th Series CPI is the latest of a number of retail/consumer price indexes that have been constructed for various purposes by the ABS.

INDEX POPULATION

The CPI measures price changes relating to the spending pattern of metropolitan private households. This group is termed 'the CPI population group' and includes a wide variety of subgroups such as wage and salary earners, the self-employed, age pensioners and social welfare beneficiaries. 'Metropolitan' is defined as the state capital cities, together with Darwin and Canberra. The current CPI population group represents about 64% of all Australian households.

This population group differs from that applying to CPIs calculated and published prior to the September quarter 1998. For more information see 'Outcomes of the 13th Series Australian Consumer Price Index Review', Year Book Australia 1999.

Ideally, the CPI population group should encompass all Australian households, but this is not possible due to the substantial additional resources that would be required to collect prices outside the capital cities. However, ABS research has shown that while price levels in regional and rural areas often differ from those in metropolitan areas (some higher and others lower), the factors influencing price movements generally tend to be similar. Therefore the CPI can be expected to provide a reasonable indication of the changes in prices in Australia as a whole in the longer term.

The composition of the CPI basket and the relative importance of items in the basket relate to the household sector as a whole and not to any particular type of household. Therefore, it is important to note that since no individual household is likely to have an expenditure pattern exactly matching the overall pattern of the CPI population group, changes in the CPI are unlikely to reflect exactly the price movements faced by particular households, or by narrower subgroups of the population.

CONCEPTUAL BASIS

The CPI is a quarterly measure of the change in average price levels over time; it is not designed to measure price levels. It provides a method to compare the average price level for a quarter with the average price level for other periods such as the reference base year, or other quarters. Changes in the average price levels between periods can be calculated from their respective index levels.

The CPI aims to measure only pure price changes. In other words, it is concerned with isolating and measuring only that element of price change which is not caused by any change to either the quantity or the quality of the goods or services concerned (i.e. it aims to measure, each quarter, the change in the cost of acquiring an identical basket of goods and services). This involves evaluating any changes in the quality of goods and services included in the index and removing the effects of such changes from the prices used to construct the index.

The CPI measures changes in the prices actually paid by consumers for the goods and services they buy. It is not concerned with nominal, recommended or list prices (unless they are the prices that consumers actually pay).

The CPI basket includes goods and services ranging from steak to motor cars and from haircuts to restaurant meals. The items are chosen not only because they represent the spending habits of the CPI population group, but also because the items are those for which the prices can be associated with identifiable and specific commodities and services. While government taxes and charges that are associated with the use of specific goods and services (such as excise and customs duties, goods and services taxes, local government rates, etc.) are included, income taxes and the income-related Medicare levy are excluded because they cannot be clearly associated with the purchase or use of a specific quantity of any good or service.

Items are not excluded from the CPI basket on the basis of moral or social judgements. For example, some people may regard the use of tobacco and alcohol as socially undesirable, but these commodities are included in the CPI basket because they are significant items of household expenditure and their prices can be accurately measured. However, to assist in understanding the effect that major item groups have on the CPI, the ABS publishes a range of supplementary indexes which exclude, in turn, each of the eleven major commodity groups. These supplementary indexes can also be used in their own right for evaluating price changes or for indexation purposes.

PERIODIC REVIEWS OF THE CPI

Like any other long-standing and important statistical series, the CPI is reviewed from time to time to ensure that it continues to be relevant to current conditions. Over time, household spending habits change, as does the range of available goods and services. The CPI needs to be updated to take account of these changes. Regular reviews also provide an opportunity to reassess the scope and coverage of the index and other methodological issues.

The CPI was first compiled in 1960, with index numbers backcast to 1948. Since its inception in its current form in 1960, reviews of the CPI have usually been carried out at about five-yearly intervals. Following each review, which involves revising the list of items and their weights, the new series are linked to the old to form continuous series. This linking is carried out in such a way that the resulting continuous series reflect only price changes and not differences in the composition of the old and new baskets.

The current (15th Series) CPI reflects expenditure patterns derived mainly from the 2003-04 Household Expenditure Survey (HES) conducted by the ABS and has a reference base of 1989-90. It was introduced in the September quarter 2005.

In addition to revising weights to reflect new expenditure patterns, the 15th Series CPI introduced financial services into the CPI in a new group for financial and insurance services. For more information see Information Paper: Introduction of the 15th Series Australian Consumer Price Index (reissue) (6462.0).

WEIGHTING PATTERN

The composition of the CPI basket is based on the pattern of household expenditure in the 'weighting base period', which is 2003-04 for the 15th Series CPI. Measures of expenditure are obtained primarily from the HES. The HES data, modified for known instances of under-reporting (the most notable being for alcohol and tobacco), are then used to derive a weight for each of 90 expenditure classes. The weights for the 15th Series groups and subgroups based on June quarter 2005 prices are shown in table 28.1.

28.1 WEIGHTING PATTERN FOR THE CPI(a)(b) - 15th Series

Groups and subgroups
Weight in CPI basket

Food
Dairy and related products
1.19
Bread and cereal products
1.72
Meat and seafoods
2.42
Fruit and vegetables
2.11
Non-alcoholic drinks and snack food
1.96
Meals out and take away foods
4.56
Other food
1.49
Total
15.44
Alcohol and tobacco
Alcoholic drinks
4.38
Tobacco
2.41
Total
6.79
Clothing and footwear
Men’s clothing
0.75
Women’s clothing
1.41
Children’s and infants’ clothing
0.40
Footwear
0.64
Accessories and clothing services
0.72
Total
3.91
Housing
Rents
5.22
Utilities
3.10
Other housing
11.21
Total
19.53
Household contents and services
Furniture and furnishings
3.13
Household appliances, utensils and tools
1.76
Household supplies
2.91
Household services
1.81
Total
9.61
Health
Health services
3.56
Pharmaceuticals
1.14
Total
4.70
Transportation
Private motoring
12.38
Urban transport fares
0.73
Total
13.11
Communication
Communication
3.31
Total
3.31
Recreation
Audio, visual and computing
2.92
Books, newspapers and magazines
0.85
Sport and other recreation
3.72
Holiday travel and accommodation
4.06
Total
11.55
Education
Education
2.73
Total
2.73
Financial and insurance services
Financial services
7.81
Insurance services
1.50
Total
9.31
All groups
100.00

(a) Percentages may not add due to rounding.
(b) Weights shown are those applicable from the June quarter 2005 onwards for the average of the eight capital cities.

Source: Consumer Price Index: 15th Series Weighting Pattern (6430.0).


PRICE COLLECTION

Since the CPI is designed to measure the impact of changing prices on metropolitan private households, information about prices is collected in the kinds of retail outlets or other places where these households normally purchase goods and services. Prices are collected from many sources, including supermarkets, department stores, footwear stores, restaurants, motor vehicle dealers, house builders, dental surgeries, hotels and clubs, schools, hairdressers, telephone carriers, travel agents and airlines, bus operators, electricians and plumbers. Items like rail fares, electricity, gas, water and sewerage charges and property rates and charges, are collected from the authorities concerned. Information on rents is obtained from property management companies and from government housing commissions. In total, around 100,000 separate price quotations are collected each quarter.

The collection of prices in each capital city is carried out by trained ABS field staff.

The prices used in the CPI are those that any member of the public would have to pay to purchase the specified good or service, including any taxes, excise and customs duties, etc., relating to goods and services. Sale prices, discount prices and 'specials' are reflected in the CPI so long as the items concerned are of normal quality (i.e. not damaged or shop-soiled) and are offered for sale in reasonable quantities. To ensure that the price movements reflect the buying experience of the bulk of the metropolitan population, the brands and the varieties of the items priced are generally those which sell in greatest volume.

PRICE MOVEMENTS BY CITY

Table 28.2 presents All groups index numbers for each of the eight capital cities and for the weighted average of the eight capital cities, together with percentage changes.

28.2 CONSUMER PRICE INDEX, Capital cities(a)(b)

Sydney
Melbourne
Brisbane
Adelaide
Perth
Hobart
Darwin
Canberra
Weighted
average
of eight
capital
cities

INDEX NUMBER(c)

1999-2000
125.4
124.1
125.0
126.3
122.9
124.8
124.2
124.2
124.7
2000-01(d)
133.2
131.6
132.4
133.5
129.6
132.0
130.9
131.9
132.2
2001-02
137.2
135.3
136.3
137.2
133.1
134.7
133.7
135.2
136.0
2002-03
141.1
139.7
140.7
142.7
136.8
139.1
136.8
139.7
140.2
2003-04
144.1
142.8
144.8
147.0
139.6
142.6
138.7
143.4
143.5
2004-05
147.7
145.7
148.5
150.4
144.0
147.1
141.8
146.7
147.0

CHANGE FROM PREVIOUS YEAR (%)

1999-2000
2.4
2.6
1.7
2.5
2.3
1.9
1.5
2.2
2.4
2000-01(d)
6.2
6.0
5.9
5.7
5.5
5.8
5.4
6.2
6.0
2001-02
3.0
2.8
2.9
2.8
2.7
2.0
2.1
2.5
2.9
2002-03
2.8
3.3
3.2
4.0
2.8
3.3
2.3
3.3
3.1
2003-04
2.1
2.2
2.9
3.0
2.0
2.5
1.4
2.6
2.4
2004-05
2.5
2.0
2.6
2.3
3.2
3.2
2.2
2.3
2.4

(a) All group index numbers. Reference base year is 1989-90 = 100.0.
(b) The separate city indexes measure price movements within each city individually. They do not compare price levels between cities.
(c) Annual average of the quarterly index numbers.
(d) The 2000-01 data were affected by the introduction of The New Tax System, in particular, the introduction of the Goods and Services Tax from 1 July 2000.

Source: Consumer Price Index, Australia (6401.0).


The capital city indexes measure price movements over time in each city individually. They cannot be used to compare price levels between capital cities. For example, the index for Adelaide in 2004-05 of 150.4, compared with the corresponding index for Perth of 144.0, does not mean that prices in Adelaide are higher than those in Perth. It simply means, since the reference base period (1989-90), prices in Adelaide have increased by a greater percentage than those in Perth (50.4% compared with 44.0%).


PRICE MOVEMENTS BY BROAD COMMODITY GROUP

Table 28.3 presents, for the weighted average of the eight capital cities, index numbers for each of the eleven major commodity groups of the 15th Series CPI and for All groups, together with percentage changes.

28.3 CONSUMER PRICE INDEX, Major commodity groups(a)

Food
Alcohol
and
tobacco
Clothing
and
footwear
Housing
Household
contents
and services
Health
Trans-
portation
Commun-
ication
Recrea-
tion
Education
Financial
and
insurance services
(b)
All
groups

INDEX NUMBER(c)

1999-2000
129.2
175.2
105.5
99.9
113.3
158.7
128.9
97.8
120.4
182.4
n.a.
124.7
2000-01(d)
135.6
194.7
112.5
107.9
117.3
164.3
137.0
104.7
124.6
191.4
n.a.
132.2
2001-02
142.7
203.1
112.4
111.1
119.7
169.9
137.3
105.2
128.6
200.0
n.a.
136.0
2002-03
147.9
208.9
113.3
115.1
121.0
181.5
140.6
108.5
131.9
210.0
n.a.
140.2
2003-04
152.3
217.8
112.7
120.2
121.1
193.9
142.0
110.0
130.0
223.3
n.a.
143.5
2004-05
154.8
225.4
110.8
124.8
120.7
204.3
146.8
111.1
130.7
238.7
n.a.
147.0

CHANGE FROM PREVIOUS YEAR (%)

1999-2000
2.1
3.9
-1.1
4.3
-0.4
-2.9
5.6
-5.0
0.8
4.8
n.a.
2.4
2000-01(d)
5.0
11.1
6.6
8.0
3.5
3.5
6.3
7.1
3.5
4.9
n.a.
6.0
2001-02
5.2
4.3
-0.1
3.0
2.0
3.4
0.2
0.5
3.2
4.5
n.a.
2.9
2002-03
3.6
2.9
0.8
3.6
1.1
6.8
2.4
3.1
2.6
5.0
n.a.
3.1
2003-04
3.0
4.3
-0.5
4.4
0.1
6.8
1.0
1.4
-1.4
6.3
n.a.
2.4
2004-05
1.6
3.5
-1.7
3.8
-0.3
5.4
3.4
1.0
0.5
6.9
n.a.
2.4

(a) Weighted average of the eight capital cities. Reference base year is 1989-90 = 100.0.
(b) The Financial and insurance services group was introduced in September quarter 2005. There is no historic data for this series.
(c) Index numbers for financial years are calculated as the averages of the quarterly index numbers.
(d) The 2000-01 data were affected by the introduction of The New Tax System, in particular, the introduction of the Goods and Services Tax from 1 July 2000.

Source: Consumer Price Index, Australia (6401.0).


PRICE MOVEMENTS FOR SELECTED HOUSEHOLD TYPES

Graph 28.4 and table 28.5 present analytical indexes specifically designed to measure changes in living costs for four selected household types: Employee households; Age pensioner households; Other government transfer recipient households; and Self-funded retiree households.

These indexes represent the conceptually preferred measures for assessing the impact of changes in prices on the disposable incomes of households. In other words, these indexes are particularly suited for assessing whether or not the disposable incomes of households, or living costs, have kept pace with price changes. The CPI, on the other hand, is designed specifically to measure price inflation for the household sector as a whole and, as such, is not the conceptually ideal measure for assessing the impact of price changes on the disposable incomes of households. The most notable differences are that living cost indexes include interest charges but do not include house purchases, while inflation indexes do not include interest charges but do include house purchases.

For more information about these indexes see 'Price impacts on the living costs of selected household types', Year Book Australia 2005.

Over the period 2003-04 to 2004-05 changes in living costs ranged from a low of 2.2% for Self-funded retiree households to a high of 3.0% for Employee households. The CPI rose by 2.4% over the same period. Over the period from 1998-99 to 2004-05, the changes in living costs for all four household types are similar to the change in the CPI over the same period.

Graph 28.4: LIVING COST INDEXES(a) - 30 June

28.5 LIVING COST INDEXES(a), By selected household type

Employee
Age
pensioner
Other government
transfer recipient
Self-funded
retiree
CPI(b)(c)

INDEX NUMBER

1999-2000
102.6
103.0
103.4
102.2
103.1
2000-01(d)
109.0
109.1
109.5
108.1
109.3
2001-02
111.3
112.7
112.4
111.5
112.4
2002-03
114.9
116.3
115.9
115.2
115.9
2003-04
118.1
119.0
118.6
117.7
118.6
2004-05
121.7
121.8
121.6
120.3
121.5

CHANGE FROM PREVIOUS YEAR (%)

1999-2000
2.1
2.1
2.5
1.8
2.4
2000-01(d)
6.2
5.9
5.9
5.8
6.0
2001-02
2.1
3.3
2.6
3.1
2.9
2002-03
3.2
3.2
3.1
3.3
3.1
2003-04
2.8
2.3
2.3
2.2
2.4
2004-05
3.0
2.4
2.5
2.2
2.4

(a) Reference base is June quarter 1998 = 100.0.
(b) The CPI has been re-referenced from 1989-90 = 100.0 to June quarter 1998 = 100.0 for ease of comparison with the living cost indexes for household types.
(c) The CPI is designed to measure price inflation for the household sector and not changes in living costs.
(d) The 2000-01 data were affected by the introduction of The New Tax System, in particular, the introduction of the Goods and Services Tax from 1 July 2000.

Source: ABS data available on request, derived from selected CPI expenditure weights and price movements.


LONG-TERM PRICE SERIES

Although the CPI has only been compiled from 1948, an approximate long-term measure of retail price change has been constructed by linking together other selected retail price index series (table 28.6). The index numbers are expressed on a reference base 1945 = 100.0. The successive series are:
  • from 1901 to 1914, the A series retail price index
  • from 1914 to 1946-47, the C series retail price index
  • from 1946-47 to 1948-49, a combination of the C series index (excluding rent) and the housing group of the CPI
  • from 1948-49 onwards, the CPI.

For more information about these former retail price index series see 'History of retail/consumer price indexes in Australia', Year Book Australia 2005.

28.6 RETAIL/CONSUMER PRICE INDEX NUMBERS(a)(b)

Year
Index no.
Year
Index no.
Year
Index no.
Year
Index no.

1901
47
1931
78
1961
252
1991
1,898
1902
50
1932
74
1962
251
1992
1,917
1903
49
1933
71
1963
252
1993
1,952
1904
46
1934
73
1964
258
1994
1,989
1905
48
1935
74
1965
268
1995
2,082
1906
48
1936
75
1966
276
1996
2,136
1907
48
1937
78
1967
286
1997
2,141
1908
51
1938
80
1968
293
1998
2,159
1909
51
1939
82
1969
302
1999
2,191
1910
52
1940
85
1970
313
2000
2,289
1911
53
1941
89
1971
332
2001
2,389
1912
59
1942
97
1972
352
2002
2,462
1913
59
1943
101
1973
385
2003
2,530
1914
61
1944
100
1974
443
2004
2,588
1915
70
1945
100
1975
510
1916
71
1946
102
1976
579
1917
75
1947
106
1977
650
1918
80
1948
117
1978
702
1919
91
1949
128
1979
766
1920
103
1950
140
1980
844
1921
90
1951
167
1981
926
1922
87
1952
196
1982
1,028
1923
89
1953
205
1983
1,132
1924
88
1954
206
1984
1,177
1925
88
1955
211
1985
1,257
1926
90
1956
224
1986
1,370
1927
89
1957
229
1987
1,487
1928
89
1958
233
1988
1,594
1929
91
1959
237
1989
1,714
1930
87
1960
245
1990
1,839

(a) Reference base year is 1945 = 100.0.
(b) The index numbers from 1901 to 1980 relate to the weighted average of six state capital cities; and from 1981 to the weighted average of eight capital cities. Index numbers are for calendar years.

Source: ABS data available on request, Consumer Price Index.


Graph 28.7 shows the annual percentage changes derived from this retail/consumer price index series for the period 1904-2004.

Graph 28.7: RETAIL/CONSUMER PRICE INDEX, Annual changes


INTERNATIONAL COMPARISONS

In analysing price movements in Australia, an important consideration is Australia's performance relative to other countries. However, due to the many differences in the structure of the housing sector in different countries and in the way housing is treated in their CPIs, a simple comparison of All groups (or 'headline') CPIs is often inappropriate. In order to provide a better basis for international comparisons, the Seventeenth International Conference of Labour Statisticians (2003) adopted a resolution which called for countries, where possible, to compile and provide for dissemination to the international community an index that excludes housing and financial services.

Table 28.8 presents indexes for selected countries on a basis consistent with the resolution and broadly comparable with the Australian series 'All groups excluding Housing and Financial, and insurance services'.

28.8 CONSUMER PRICE INDEX, International comparisons(a)(b)

1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05

INDEX NUMBER

Australia(c)
129.8
136.7
140.4
144.6
147.3
150.3
New Zealand
118.7
123.5
127.0
129.5
130.2
132.6
Hong Kong (SAR of China)
166.6
164.8
162.5
159.2
158.7
161.3
Indonesia
367.1
402.6
458.3
495.8
524.4
560.2
Japan
111.6
111.0
107.7
106.4
106.1
106.2
Korea, Republic of (South)
172.1
179.2
185.0
190.9
197.4
204.9
Singapore
119.9
122.2
121.9
122.4
124.2
125.6
Taiwan
129.3
130.9
130.6
130.5
131.1
134.7
Canada
125.0
128.1
130.3
135.2
136.9
139.3
United States of America
130.9
135.3
136.4
138.9
141.8
146.2
Germany
122.2
123.7
126.0
127.4
128.9
131.1
United Kingdom
139.3
141.4
143.5
145.8
147.9
149.7

CHANGE FROM PREVIOUS YEAR (%)

Australia(c)
1.8
5.3
2.7
3.0
1.9
2.0
New Zealand
1.5
4.0
2.8
2.0
0.5
1.8
Hong Kong (SAR of China)
-3.1
-1.1
-1.4
-2.0
-0.3
1.6
Indonesia
-0.3
9.7
13.8
8.2
5.8
6.8
Japan
-0.7
-0.5
-3.0
-1.2
-0.3
0.1
Korea, Republic of (South)
1.8
4.1
3.2
3.2
3.4
3.8
Singapore
1.3
1.9
-0.2
0.4
1.5
1.1
Taiwan
0.9
1.2
-0.2
-0.1
0.5
2.7
Canada
2.5
2.5
1.7
3.8
1.3
1.8
United States of America
2.9
3.4
0.8
1.8
2.1
3.1
Germany
0.6
1.2
1.9
1.1
1.2
1.7
United Kingdom
1.5
1.5
1.5
1.6
1.4
1.2

(a) Reference base year is 1989-90 = 100.0.
(b) All groups excluding Housing, and Financial and insurance services.
(c) The 2000-01 data for Australia were affected by the introduction of The New Tax System, in particular, the introduction of the Goods and Services Tax from 1 July 2000.

Source: Consumer Price Index, Australia (6401.0).


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