1360.0 - Measuring Australia's Economy, 2003
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 03/02/2003
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The All Groups Consumer Price Index (CPI) recorded an average annual rate of growth between 1991-92 and 1999-00 of about 1.9%, varying from a low of 0% in 1997-98 to a high of 4.2% in 1995-96.
Explanatory Notes The Consumer Price Index (CPI) has been specifically designed as a general measure of price inflation for the household sector as a whole. The simplest way of thinking about the CPI is to imagine a basket of goods and services comprising items typically bought 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 fixed basket over time. This basket of goods and services has been selected to represent purchases by all metropolitan private households and covers expenditure on the following broad items: food; alcohol and tobacco; clothing and footwear; housing; household furnishings, supplies and services; health; transportation; communication; recreation; education; as well as on some other miscellaneous items. To ensure the basket remains representative of current spending habits, it is revised about every five years. The price of the CPI basket in the base period (currently 1989-90) is assigned a value of 100.0 and 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 15% since the base period then the CPI would read 115.0. The actual index number for any given period is therefore equal to:
------------------------------------------------------------------------- x 100 total cost of fixed basket in reference base period The CPI has always been an important economic indicator and in recent years actions related to movements in the CPI have had direct or indirect effects on all Australians. For example, it is used by the Reserve Bank of Australia in determining monetary policy; it is used to index Social Security and superannuation payments; it is used to adjust excise and customs duty on alcohol and tobacco; and it is used in a range of business contracts for price adjustment. The CPI is often loosely referred to as a 'cost of living index' but this is not correct. A true cost of living index, among other things, would need to take into account changes in standards of living and the substitutions that consumers make in order to maintain their standard of living in the face of changing market conditions (for instance, buying chicken instead of beef when beef prices are high). In contrast, the CPI assumes the purchase of a constant basket of goods and services and measures changes in the price of the goods and services in that basket alone. A 'cost of living index' would also include things such as mortgage interest charges, which are currently excluded from the CPI. Further Reading Consumer Price Index, Australia (6401.0) Presents quarterly movements in retail prices of goods and services commonly purchased by metropolitan private households. Indexes are published for each of the State capitals, Canberra and Darwin. A Guide to the Consumer Price Index: 14th Series (6440.0) Contains information designed to promote the understanding of the CPI. It includes what the CPI is, to whom the CPI relates and how it is calculated.
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