INSTITUTIONAL ENVIRONMENT

The ABS is independent of government, with the Australian Bureau of Statistics Act 1975 giving the Statistician the power to control the operations of the ABS. For further information on the institutional environment of the Australian Bureau of Statistics (ABS), including the legislative obligations of the ABS, financing and governance arrangements, and mechanisms for scrutiny of ABS operations, please see ABS Institutional Environment.


RELEVANCE

The Australian Consumer Price Index (CPI) is designed to provide a general measure of price inflation for the household sector as a whole. In practice, the index is constrained to only measure the changes in prices faced by private households living in the six State capital cities plus Canberra and Darwin.

The simplest way of thinking about the CPI is to imagine a basket of goods and services comprising items bought by Australian households. Now imagine the basket is purchased each quarter. As prices change from one quarter to the next, so too will the total price of the basket. The CPI is simply a measure of the changes in the price of this fixed basket as the prices of items in it change.

The total basket is divided into 11 major groups, each representing a specific set of commodities:

• Food
• Alcohol and tobacco
• Clothing and footwear
• Housing
• Household contents and services
• Health
• Transportation
• Communication
• Recreation
• Education
• Financial and insurance services.

In the case of the Australian CPI this methodology involves devising a basket of goods and services representative of those acquired by metropolitan private households during the course of a full year. The annual basket used in the CPI is based primarily on data obtained from the Household Expenditure Survey (HES) which is the only authoritative source of data on the expenditures of different household types in each of the capital cities.

The CPI is an important economic indicator used in formulating monetary policy and in a wide range of business, economic and social analysis and decision-making.


TIMELINESS

The CPI is released each quarter, (three months ending March, June, September and December). The data are typically released on the fourth Wednesday after the end of the reference quarter, depending on public holidays, but no later than the last Wednesday of the month after the end of the reference quarter.


ACCURACY

The overall (or All groups) CPI provides a measure of the average rate of price change. In calculating an average measure of this type it is necessary to recognise that some items are more important than others. Measures of expenditure on each of the 90 CPI expenditure classes are obtained from the HES, which is the only authoritative source of data on the expenditures of different household types in each of the capital cities. It is important to understand that the composition of the basket and the relative importance of items in it relate to households as a whole - it represents the expenditures of all in scope households, not the expenditure pattern of an “average household” or of any particular household type or size.

The collection of prices in each capital city is largely carried out by trained field staff. Prices are collected in the kinds of retail outlets and other places where metropolitan households purchase goods and services. This involves collecting prices from many sources such as supermarkets, restaurants, travel agents and schools.

In total, around 100,000 separate price quotations are collected each quarter. 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 prices frequent price observations are necessary to estimate a reliable average quarterly price.

The CPI takes account of any changes in the quality of the items priced to ensure that the index reflects only pure price change. Items available in stores are constantly changing. The CPI Identifies changes to item specifications and adjusts observed prices to eliminate quality differences.

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. Index numbers are released as final figures at the time they are first published. Revisions have never occurred and will only occur in exceptional circumstances.


COHERENCE

The CPI was first compiled in 1960, with index numbers backcast to 1948. Since its inception in its current form in 1960, reviews of the CPI have usually been carried out at about five-yearly intervals. Following each review, which involves revising the list of items and their weights, the new series are linked to the old to form continuous series. This linking is carried out in such a way that the resulting continuous series reflect only price changes and not differences in the composition of the old and new baskets. This approach allows changes in expenditure patterns to be reflected in the CPI. The data are comparable from the start of each data series.

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.


INTERPRETABILITY

Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. Percentage changes are calculated to illustrate three different kinds of movements in index numbers:

• 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.

To assist users to interpret the data, the ABS publishes a number of analytical series including:

• All groups excluding Food
• All groups excluding Financial and insurance services
• All groups excluding Housing and Financial and insurance services
• All groups, goods component
• All groups, services component
• All groups, tradables component
• All groups, non-tradables component
• All groups excluding ‘volatile items’
• Market goods and services excluding ‘volatile items’
• Reserve Bank of Australia measures:
  • 'Weighted median' and
  • 'Trimmed mean'

A detailed description of the special and analytical series was published in Appendix 1 to the September quarter 2005 issue of Consumer Price Index, Australia (cat. no. 6401.0).


The CPI publication (cat. no. 6401.0) contains Explanatory Notes that provide information about the structure, weights, data sources and other technical aspects of the series. Further information is available in cat. no. 6440.0 - A Guide to the Consumer Price Index: 15th Series, 2005. Another useful source is 6462.0 - Information Paper: Introduction of the 15th Series Australian Consumer Price Index 2005 (Reissue), 2005. More detailed information can also be found in cat. no. 6461.0 - Australian Consumer Price Index: Concepts, Sources and Methods, 2005.


ACCESSIBILITY

A link to the latest issue of the Consumer Price Index can be found on the ABS' home page <www.abs.gov.au>. Detailed information, including a range of time series spreadsheets, can be found in the "Details" tab of this webpage. For links to data and publications relating to the labour price index and other prices series, please see the Prices Theme Page. Enquiries about CPI data can be made to Lee Taylor on Canberra (02) 6252 6251 or email <lee.taylor@abs.gov.au>.