Australian CPI, Concepts, Sources and Methods
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Warning - this online document is now out of date. For the updated online version of this document see: Australian Consumer Price Index: Concepts, Sources and Methods - 2005 . For an acrobat version see Australian Consumer Price Index: Concepts, Sources and Methods (cat. no. 6461.0).
8.4 After the items to be priced have been selected, detailed specifications are prepared to ensure that all staff involved in price collection and compiling the CPI have exactly the same understanding of which particular items are to be priced. In most cases for goods, it is a relatively straightforward matter of specifying the characteristics involved in describing the items. The characteristics may include brand name, material of composition, model number, style, size, colour and type of packaging. 8.5 As discussed in Chapter 7, it is generally more difficult to specify service items adequately because both quantity and quality are less readily describable for these items. In addition, more detailed descriptions are usually required in the specifications for services in comparison to those for goods. For example, the specification for a can of tomato soup would consist of only two characteristics: the brand name and the weight of the can. However, the specification for a travel service like a bus fare will have to include three characteristics: the age of the purchaser (as both adult and child fares will be required), the specific route priced and the time of the journey (peak or off-peak fare). 8.6 The preferred practice in pricing goods for the CPI is to price identical specifications (i.e. the same brand name, size or model of product) at all outlets in all cities. The nature of many goods and services, however, makes this impossible for a large number of cases. In practice, products are categorised into one of three categories: i. National standards. These products are available in all cities and at the vast majority of respondent outlets. They can be readily and clearly defined by characteristics such as make, model and size, as a specification for use nation-wide. Field Officers have no latitude in choosing the product for pricing. Examples include motor vehicles and major brand breakfast cereals ii. Respondent standards. In these cases, the product can be readily defined with regard to form and function but a multitude of brands and models may exist making it virtually impossible to guarantee that any one example of the product will be available Australia-wide. A generic description is provided in sufficient detail to ensure that the field officers will be able to locate an example of the product, consistent with the quality of those chosen in other outlets within the one city and broadly consistent with those in other cities. An example of the required type of product is chosen at each respondent outlet and its defining characteristics are added to the generic description for future use at the particular respondent. Examples of such products are beer, daily newspapers and furniture iii. Volume sellers. For some products, there are a very large number of brands or varieties available and these are fairly readily substitutable for one another. In general, consumers show no, or minimal, brand loyalty or preference and base their choice purely on price. In these cases, brand is not considered a vital characteristic and the field officers collect the price of the cheapest brand available from each respondent. Examples of these products include margarine, frozen chickens, tubs of ice-cream and the cheaper brands of spirits. NEW GOODS AND SERVICES 8.8 If a new product or service is deemed to be a completely different category of product (i.e. a new expenditure class) from any of the goods and services already included in the CPI, its inclusion would be considered only during one of the periodic review and re-weighting exercises. The inclusion of television sets in the 1960s is a good example of such an occurrence. However, where a new product or service falls within the definition of an existing expenditure class (e.g. the introduction of colour television sets or mobile telephones), the issue is when and how to introduce the product into the process of regular measurement of price movements for the CPI. Normally, the decision is made after consideration has been given to the following factors:
8.9 In general, a conservative approach is applied when dealing with the introduction of new products or services into the CPI. They are introduced into existing expenditure classes only after it is deemed that they have become widely available to the buying public, have become a permanent feature of household expenditure and that the price structures of these items are free from high premiums due to novelty value or scarcity of the item. All introductions of new items are handled by splicing the new item into the index so that its introduction does not, of itself, affect the level of the index. SELECTING THE SAMPLE OF OUTLETS FOR PRICING 8.10 Consumers purchase the goods and services priced in the CPI from a wide variety of retail outlets. Examples of these outlets include department stores, hotels, motor vehicle dealers, doctors, electricity and gas authorities, travel agents, schools and child-care centres. For every item selected for pricing, the main types of outlets from which the CPI population group buys the items need to be identified so that the ABS can select representative samples of these outlets. 8.11 In selecting outlets for inclusion in samples for the CPI, the following factors are taken into account:
CHANGES TO OUTLET SAMPLES 8.12 The samples of respondents are reviewed regularly to ensure that they remain representative of the CPI population group's sources for purchases. Events such as company takeovers, new retailers entering the market, existing chain organisations opening new outlets or new shopping complexes opening up can all lead to the need to change the samples of respondents so that they continue to be representative of the CPI population group's overall purchases. Changes to the sample of respondents or specifications are carried out using a splicing process. A worked example of this process is presented in Chapter 3. PRICE COLLECTION PROCEDURES 8.13 To ensure the accuracy of prices used in the CPI, the vast majority of price information is collected via personal visits to the selected respondents. These personal visit collections are made by trained and experienced ABS field staff, who observe actual marked prices as well as discuss matters such as discounts, special offers, and volume selling items on the day, and record this information in handheld computers. The regular personal visits by field staff to the retail outlets also enable the field officers to continuously monitor activity in the market (such as market shares or possible quality changes). This information is used in maintaining sample representativeness, making quality change assessments and so on. 8.14 Once items have been selected they are organised into groups (called collections). Each collection contains products that are generally sold by all possible respondents and are also usually located together within any one store. An example of a collection would be a 'white goods' collection. This would contain refrigerators, washing machines, dishwashers and clothes dryers. Most respondents that sell any of these products will sell all of the products. These products are also usually located in the same area of any store. 8.15 The main benefits gained from grouping items within these collections are:
8.16 The grouping of items into various collections is based on the situation faced by consumers in the market place, not by any ordering required for index estimation. The collection and use of alcohol prices provides a good example of this. Alcoholic beverages of all types are sold in two ways:
8.17 Once collected the prices are re-sorted into the CPI compiler’s perspective i.e. categorised by alcohol type (beer, wine and spirits) for use in index estimation. 8.18 The ABS does not use list prices or recommended retail prices without checking that these are, in fact, the prices charged to customers by the respondent concerned. Special prices and discount prices are taken into consideration when these are generally available to the buying public. The basic test of whether such prices can validly be used in compiling the CPI is whether the goods are of a quality identical to that in the item specifications (e.g. the goods are not damaged or superseded stock) and are available in quantities sufficient for shoppers generally to buy them on the pricing date (i.e. there are not merely a limited number available to early birdshoppers or purchases are not subject to some other restriction). 8.19 While special and discounted retail prices are readily observable for the majority of goods, it is not necessarily the case for large and expensive durables, in particular motor cars, as prices sometimes may not be advertised widely and may be disguised in the form of bonuses (so-called trade-ins, extra features etc.). In such cases, substantial effort (including interviews with senior sales staff) is made to ensure that full particulars of the actual transaction prices are obtained. 8.20 In cases where prices are set centrally and do not vary by location, the prices are collected from the supplier's Head Office. Postage charges are a good example of this situation. MISSING OBSERVATIONS 8.21 In some cases, it is not possible to collect the price of a certain item in a particular period. This can be due to various circumstances, with a common one being the item was out of stock in the outlet sampled. The section on temporarily missing price observations in Chapter 3 describes several ways of dealing with this situation. The procedure most commonly used in the Australian CPI is to impute a movement for the missing item based on the price movements of the other items in the sample. The implicit assumption behind this procedure is that if it had been possible to collect the price of this item, its price would have changed in line with similar items. In most cases, this is a reasonable assumption and will provide an acceptable outcome for the index. 8.22 This method would be inappropriate when a product has no close substitutes or if its price is reviewed (and collected) annually. In these cases, a more appropriate method of imputation is to repeat the previous price. EDITING BY FIELD OFFICERS 8.23 Price editing commences during the actual collection process. The handheld computer used to collect the prices has a number of facilities designed to help the field officers edit the data as it is being collected. Examples of these edit checks include:
8.24 Further editing checks, mainly to do with overall consistency, are performed back in the office. QUALITY ADJUSTMENT BY FIELD OFFICERS 8.25 Field officers are able to enter all the information necessary for quality adjustment to prices into the handheld computers. 8.26 If the field officers find themselves in a situation where they do not have all the necessary information for a successful quality adjustment calculation, then the record is flagged as such and dealt with by the index compilers. CHECKING BY COMPILING STAFF 8.27 The collected prices undergo further checking by the staff responsible for compiling the index. Where prices are found to be unusual (for instance, when movements are not considered representative) or not within expectations (i.e. inconsistent with knowledge gained from other sources), they are generally referred back to the field officer for verification. 8.28 Investigations are conducted to enable quality adjustments to be performed on records flagged by field officers as having quality changes which were not readily quantifiable. PRICING BASIS 8.29 The weighting pattern for the Australian CPI is based on the acquisitions concept and so the pricing of goods and services is also based on this conceptual approach for consistency (refer to Chapter 4 for an explanation of the different conceptual bases). In most cases, the acquisition of the good or service occurs at the same time as the payment and so any price movements are recorded then. There are some goods and services where payment for, and acquisition of, the good or service do not coincide. In these cases, prices are recorded at the time the good or service is acquired and not when the payment is made. Examples where this can happen include:
PRICE COLLECTION FREQUENCY 8.30 As the CPI is compiled on a quarterly basis, prices of most goods and services in the regimen are collected once each quarter. Prices of goods and services that are considered to be volatile (i.e. likely to change more than once during a quarter) are collected more frequently. A small number of items are collected only once a year, either due to known price review periodicity (e.g. council rates) or seasonal availability (e.g. football matches). The general approach is to price each item as frequently as is necessary to ensure that reliable measures of quarterly price change can be calculated. Information about the frequency of collection of the various products in the index is included in the detailed descriptions for each CPI group in this Chapter. 8.31 The following sections describe in more detail the price collection methodology used in each of the 11 CPI groups. A brief description is provided of the group’s index structure, products priced, the frequency of collection and the types of outlets from which the prices are collected. Collection issues specific to each group are also highlighted. See also:
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