FEATURE ARTICLE: CONTRIBUTORS TO ADELAIDE'S PRICE RISES


CONTRIBUTORS TO ADELAIDE'S PRICE RISES

The Consumer Price Index (CPI) measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by metropolitan households. This 'basket' covers a wide range of goods and services, arranged into 11 expenditure groups and 90 expenditure classes.

The following article presents an overview of the CPI for Adelaide in comparison to other capital cities using data from Consumer Price Index, Australia (cat. no. 6401.0). It offers an overview of the CPI movement over the decade ending June quarter 2008 with emphasis on particular expenditure groups and classes that have driven CPI growth in Adelaide. Key points from the article are:

• Adelaide's CPI rose 4.6% over the year ending June quarter 2008, compared to 4.5% for the weighted average of the eight capital cities.
• Driving the CPI growth in Adelaide over this period were the Transportation, Housing and Food Expenditure groups. They contributed 21.4%, 20.1% and 20.0% of the growth respectively.
• Adelaide's CPI rose 36.9% over the decade ending June quarter 2008, compared to 36.0% for the weighted average of the eight capital cities.
• In the decade ending June quarter 2008, the Adelaide CPI for Food increased by 51.6%, while the weighted average of all eight capital cities grew by 45.8%.
• Transportation costs rose 7.1% over the last year and 44.1% over the last decade in Adelaide.

Overall CPI Value

The CPI for Adelaide grew by 4.6% in the year ending June quarter 2008, while the weighted average for the eight capital cities in Australia grew by 4.5%. From the June quarter 1998, the CPI for Adelaide grew by 36.9%, while the weighted average of the eight capital cities grew by a similar amount (36.0%) across the same period. The greatest contributors to the increase in Adelaide were the Transportation, Housing and Food expenditure groups.

The CPI for Adelaide has grown by the third largest amount out of all Australian capital cities in the 10 years from the June quarter 1998 to the June quarter 2008 (36.9%). Perth had the largest growth in the All groups CPI in this period (38.9%), while the CPI for Brisbane also showed substantial growth in this period (37.3%). However, the CPI does not provide any basis for measuring relative price levels between different cities. If the index number for a particular city is higher than the index number for another city, this indicates that prices in that city have risen relatively faster since the reference base year rather than that city having a higher price level.

Contributors to CPI Change

CPI values for specific expenditure groups contribute differently to overall CPI change based upon their weightings. Such weightings for particular expenditure groups are derived from results of the Household Expenditure Survey. These weights are intended to reflect the expenditure patterns of households on average, so that price changes for more important items have a greater influence on the overall CPI change than price changes for less important items.

In the year ending June quarter 2008, Adelaide's CPI rose by 4.6%. Based upon their weightings as well as changes in their respective index values, the expenditure groups that contributed the strongest influences to this growth were Transportation (which accounted for 21.4% of overall CPI growth across this period), Housing (20.1%) and Food (20.0%).

Transportation

In the year ending June quarter 2008, the Transportation expenditure group for Adelaide grew by 7.1%, while the Transportation group for the weighted average of the eight capital cities grew by 6.9%. From June quarter 1998 to June quarter 2008, the Transportation expenditure group in Adelaide grew by 44.1%, while the transportation group for the weighted average of all eight capital cities grew by 39.7%.

The strongest contributor to recent growth of the Transportation expenditure group in Adelaide was Automotive fuel. This expenditure class contributed 91.7% of the growth in the CPI for the Transportation expenditure group in the year from June quarter 2007 to June quarter 2008.

Conversely, the Motor vehicles expenditure class exerted negative pressure on the Transportation group for Adelaide in the year ending June quarter 2008. Price changes for this expenditure class contributed a 12.2% reduction in the transportation group in Adelaide through this period. The Motor vehicles expenditure class in Adelaide has decreased by 2.5% in the year ending June quarter 2008, due mostly to the impact of bonuses included in purchases, such as driveaway deals, free on-road costs or free fuel.

The Automotive fuel expenditure class for Adelaide grew by 19.4% in the year ending June quarter 2008, while the weighted average of the eight capital cities grew by 18.4%. The Automotive fuel expenditure class for Adelaide has demonstrated substantial growth in the 10 years from June quarter 1998 to June quarter 2008, increasing 113.8% over this period. The weighted average of the eight capital cities has increased by 118.8% over the same period.

Housing

Housing in Adelaide rose by 5.0% over the year ending June quarter 2008, while the weighted average of the eight capital cities grew by 6.0%. From June quarter 1998 to June quarter 2008, the Housing expenditure group for Adelaide has increased by 54.5%, while that for all capital cities has increased by 51.7%.

The strongest contributor to growth in the Housing expenditure group in Adelaide in the year to June quarter 2008 was the House purchase expenditure class, which contributed 40.1% of the growth in the Housing group over this period.

Other expenditure classes that contributed strongly to growth of the Housing group in the year to June quarter 2008 were Rents (21.1%) and Electricity (17.0%).

Within the Housing group for Adelaide, the Electricity expenditure class has demonstrated the most pronounced increase in the ten years to June quarter 2008 (64.9%). This increase is most apparent in the period from December quarter 2002 to March quarter 2003, when the Electricity class in Adelaide grew by 30.6%.

The House purchase expenditure class also demonstrated pronounced growth within the same period, increasing by 63.2%. The Rents expenditure class increased by 38.6%.

Food

From June quarter 1998 to June quarter 2008, the Food expenditure group in Adelaide increased by 51.6%, while the weighted average of all eight capital cities for this expenditure group grew by 45.8%. Up until June quarter 2002, the Food expenditure group values for Adelaide and the weighted average of all eight capital cities demonstrated relatively similar movement. However, since September quarter 2002 growth in the Food expenditure group in Adelaide has been more pronounced, increasing by 29.0% as compared to an increase of only 23.8% for the weighted average of all eight capital cities.

The expenditure classes that demonstrated the strongest contributions to growth in the Food expenditure group for Adelaide across the past year were: Take away and fast foods (15.1%); Restaurant meals (11.6%); and Cakes and biscuits (11.0%).

The Restaurant meals expenditure class for Adelaide has demonstrated sustained growth in the 10 years from June quarter 1998 to June quarter 2008 (63.4%). The Cakes and biscuits expenditure class has increased by 54.0% over this period, while the Take away and fast foods class has increased by 52.8%.

Conclusion

In the past 10 years, Adelaide's All groups CPI grew by 36.9%, while the weighted average of the eight capital cities grew by a similar amount (36.0%). In the year ended June 2008, the All groups CPI for Adelaide grew by 4.6%, while the weighted average of the eight capital cities grew by a slightly smaller amount (4.5%) across the same period.

Expenditure groups such as Transportation and Housing are clear contributors to recent growth in the Adelaide index. Despite the strong contributions of these groups to recent CPI growth in Adelaide, both demonstrate growth that resembles change in national figures. However, long-term analyses demonstrate that the growth of the Food expenditure group for Adelaide exceeds that for the weighted average of all eight capital cities in Australia.