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CPI basket based on 1993–94 HES data

The composition of the CPI basket is based on the pattern of household expenditure in the ‘weighting base period’, which is 1993–94 for the 13th series CPI. During this period, information on the spending habits of Australian households was obtained in the Household Expenditure Survey (HES) conducted by the ABS. The HES results provide the starting point for selecting the basket of goods and services to be priced for the CPI.

CPI basket includes items representative of all consumer goods and services

For practical reasons, the basket cannot include every item bought by households, but it does include all the important kinds of items. It is not necessary to include all the items people buy since many related items are subject to similar price changes. The idea is to select representative items so that the index reflects price changes for a much wider range of goods and services than is actually priced. Examples of the types of items represented in the basket are shown in Appendix 2.

When determining what items are to be priced for the CPI basket, various factors are taken into consideration. Items:

• Must be representative of purchases made by the CPI population group.

• Must have prices which can be associated with an identifiable and specific commodity or service (e.g. a 420g can of baked beans, or motor vehicle registration fees).

• Are not excluded on the basis of moral or social judgements. For example, some people may regard the use of tobacco or alcohol as socially undesirable, but both are included in the CPI basket because they are significant items of household expenditure and their prices can be accurately measured.

Cost of servicing debt excluded, but financial services in scope

The design of the 13th series CPI as a measure of inflation means that the cost of servicing debt used to finance the acquisition of goods and services is excluded from the basket. Conceptually, those costs that relate to the purchase of a financial service by consumers are within scope of an inflation measure.

Financial service costs are of two broad types; direct and indirect. Direct costs include fees and charges on credit cards, bank accounts, and service fees such as commissions charged by stockbrokers. Indirect costs are essentially the interest margins applying to the deposits and borrowings of households with financial institutions. Given the changing mix of direct and indirect charges in recent years, it is important that both be included in the CPI if the measure is to be unbiased. The ABS is developing a methodology to measure these services with a view to their inclusion in the CPI early in 2000.

The CPI groups

The total basket is divided into 8 major groups, each representing a specific set of commodities:

Food
Clothing
Housing
Household equipment and operation
Transportation
Alcohol and tobacco
Health and personal care
Recreation and education