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EXPLANATORY NOTES


BRIEF DESCRIPTION OF THE CPI

1 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 the CPI population group (i.e. metropolitan households). This ‘basket’ covers a wide range of goods and services, arranged in the following eleven groups:

food
alcohol and tobacco
clothing and footwear
housing
household contents and services
health
transportation
communication
recreation
education
financial and insurance services.

3 Further information about the CPI is contained in Australian Consumer Price Index: Concepts, Sources and Methods, 2005 (cat. no. 6461.0) which is available on the ABS web site <https://www.abs.gov.au>.

PRICES

4 The frequency of price collection by item varies as necessary to obtain reliable price measures. Prices of some items are volatile (i.e. their prices may vary many times each quarter) and for these items frequent price observations are necessary to obtain a reliable measure of the average price for the quarter. Each month prices are collected at regular intervals for goods such as milk, bread, fresh meat and seafood, fresh fruit and vegetables, alcohol, tobacco, women's outerwear, project homes, motor vehicles, petrol and holiday travel and accommodation. For most other items, price volatility is not a problem and prices are collected once a quarter. There are a few items where prices are changed at infrequent intervals, for example education fees where prices are set once a year. In these cases, the frequency of price collection is modified accordingly.

5 In order to facilitate a more even spread of field collection workload, the number of items for which prices are collected quarterly is distributed roughly equally across each month of each quarter. In all cases, however, individual items are priced in the same month of each quarter. For example, items for which prices are collected in the first month of the September quarter, July, are also priced in the first month of subsequent quarters, namely October, January and April.

WEIGHTING PATTERN

6 There are 90 expenditure classes (that is, groupings of like items) in the fifteenth series CPI and each expenditure class has its own weight, or measure of relative importance. In calculating the index, price changes for the various expenditure classes are combined using these weights.

7 Changes in the weighting pattern have been made at approximately five-yearly intervals to take account of changes in household spending patterns. The CPI now comprises fifteen series of price indexes which have been linked to form a continuous series. The current weighting pattern for the CPI for the weighted average of the eight capital cities is published in A Guide to the Consumer Price Index, 15th Series (cat. no. 6440.0). The 15th series weighting pattern for the weighted average of eight capital cities and for each of the eight capital cities, as well as each city's percentage contribution to the weighted average, are also published in the Consumer Price Index: 15th Series Weighting Pattern (Reissue) (cat. no. 6430.0) (electronic publication). Both publications are available on the ABS web site <https://www.abs.gov.au>.

ANALYSIS OF CPI CHANGES

8 Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. The following example illustrates the method of calculating changes in index points and percentage changes between any two periods:
All groups CPI: Weighted average of eight capital cities. Index numbers:

Jun Quarter 2007 157.5 (see table 1)
less Mar Quarter 2007 155.6 (see table 1)
Change in index points 1.9
Percentage change 1.9/155.6 X 100 = 1.2%

• movements between consecutive financial years (where the index numbers for financial years are simple averages of the quarterly index numbers)
• movements between corresponding quarters of consecutive years
• movements between consecutive quarters.

SPECIAL SERIES

11 Various series are presented in tables 8, 9 and 10 in this publication which are helpful for analytical purposes. These series are compiled by taking subsets of the CPI basket. (A complete list of CPI groups, sub-groups and expenditure classes is contained in tables 6 and 7.)

12 Some of the compiled series are self explanatory, such as ‘All groups excluding Food’. Other series and their composition are described below:

• All groups excluding Financial and insurance services: Reflecting the changing composition of the CPI, from September quarter 1989 to June quarter 1998, comprises the All groups CPI excluding house insurance, house contents insurance, vehicle insurance and mortgage interest charges and consumer credit charges; from September quarter 1998 to June quarter 2000 comprises the All groups CPI excluding house insurance, house contents insurance and vehicle insurance; from September quarter 2000 to June quarter 2005 comprises the All groups CPI excluding insurance services; from September quarter 2005 comprises the All groups CPI excluding Financial and insurance services.

• All groups excluding Housing and Financial and insurance services: Reflecting the changing composition of the CPI, from September quarter 1989 to June quarter 1998, comprises the All groups CPI excluding Housing, house contents insurance, vehicle insurance and consumer credit charges; from September quarter 1998 to June quarter 2000 comprises the All groups CPI excluding Housing, house insurance, house contents insurance and vehicle insurance; from September quarter 2000 to June quarter 2005 comprises the All groups CPI excluding Housing and insurance services; from September quarter 2005 comprises the All groups CPI excluding Housing and Financial and insurance services.

• All groups, goods component: comprises the Food group (except Restaurant meals expenditure class), Alcohol and tobacco group, Clothing and footwear group (except Clothing services and shoe repair expenditure class) and Household contents and services group (except Household services sub-group); the Utilities, Audio, visual and computing and Books, newspapers and magazines sub-groups; and the House purchase, Pharmaceuticals, Motor vehicles, Automotive fuel, Motor vehicle parts and accessories, Sports and recreational equipment, Toys, games and hobbies and Pets, pet foods and supplies expenditure classes.

• All groups, services component: comprises all items not included in the ‘All groups, goods component’.

• All groups, tradables component: comprises all items whose prices are largely determined on the world market.

• All groups, non-tradables component: comprises all items not included in the 'All groups, tradables component'.

• All groups excluding ‘volatile items’: comprises the All groups CPI excluding Fruit and vegetables and Automotive fuel.

• RBA measures 'Weighted median' and 'Trimmed mean': These measures are calculated following the methodology adopted by the Reserve Bank of Australia. The 'Trimmed mean' is calculated by ordering the CPI expenditure class components by their price change in the quarter and taking the expenditure weighted average of the middle 70 per cent of these price changes. The 'Weighted median' is the price change of the component in the middle of this ordering. For calculating the 'Weighted median' and 'Trimmed mean' series, where CPI components are identified as having a seasonal pattern, quarterly price changes are estimated on a seasonally adjusted basis. Seasonal adjustment factors are calculated using the history of price changes up to the current quarter CPI and are revised each quarter. These revisions to the seasonal adjustment factors lead to revisions in the 'Weighted median' and 'Trimmed mean' series. Movements in the series from one period to another are expressed as percentage changes (see paragraph 9).

14 The ABS is grateful for the assistance of the Reserve Bank of Australia for specifying the items included in the 'All groups excluding 'volatile items'' and 'Market goods and services excluding 'volatile items''. The Reserve Bank of Australia does not accord any special policy status to these series.

ROUNDING

15 The CPI uses a hierarchy of rounding procedures to ensure consistency between published index numbers and percentage changes. However, rounding differences can arise in the "points contributions" published in tables 6, 7 and 8 because of the different levels of precision required in those data.

INTERNATIONAL COMPARISONS

16 In analysing price movements in Australia, an important consideration is Australia's performance relative to other countries. However, a simple comparison of All groups (or headline) CPIs is often inappropriate because of the different measurement approaches used by countries for certain products, particularly housing and financial and insurance services. To provide a better basis for international comparisons, the Seventeenth International Conference of Labour Statisticians adopted a resolution which called for countries to 'if possible, compile and provide for dissemination to the international community an index that excludes housing and financial services' in addition to the all-items index.

17 Table 11 aims to present indexes for selected countries on a basis consistent with the above resolution and comparable to the Australian series ‘All groups excluding Housing and Financial services’ (see paragraph 12). However, other than Australia and New Zealand, the countries represented in this table are yet to develop indexes on this basis, so the indexes presented here are consistent with the series previously published for All groups excluding Housing. To facilitate comparisons all indexes in this table have been converted, where necessary, to a quarterly basis and re-referenced to a base of 1989-90 = 100.0.

18 In producing table 11, the ABS is grateful for the assistance of the relevant national statistical agencies which have either directly supplied indexes for all items excluding housing and financial services or data to enable their derivation.

RELATED PUBLICATIONS

19 Current publications and other products released by the ABS are listed in the Catalogue of Publications and Products (cat. no. 1101.0). The Catalogue is available from any ABS office or the ABS web site <https://www.abs.gov.au>. The ABS also issues a daily Release Advice on the web site which details products to be released in the week ahead.

20 Users may also wish to refer to the following publications and other data products that are available free of charge from the ABS web site:

• Average Retail Prices of Selected Items, Eight Capital Cities (cat. no. 6403.0.55.001)
• Information Paper: Experimental Price Indexes for Financial Services (cat. no. 6413.0)
• House Price Indexes: Eight Capital Cities (cat. no. 6416.0)
• Consumer Price Index: 15th Series Weighting Pattern (Reissue) (cat. no. 6430.0)
• A Guide to the Consumer Price Index, 15th Series (cat. no. 6440.0)
• Consumer Price Index: Concordance with Household Expenditure Classification, Australia (cat. no. 6446.0.55.001)
• Consumer Price Index Standard Data Report: Capital Cities Index Numbers by Expenditure Class (cat. no. 6455.0.55.001)
• Information Paper: The Introduction of Hedonic Price Indexes for Personal Computers (cat. no. 6458.0)
• Australian Consumer Price Index: Concepts, Sources and Methods, 2005 (cat. no. 6461.0)
• Information Paper: Introduction of the 15th Series Australian Consumer Price Index 2005 (Reissue) (cat. no. 6462.0)
• Information Paper: Consumer Price Index with Reserve Bank of Australia Consumer Price Measures, Australia, 2007 (cat. no. 6401.0.55.002).