Underneath the headlines: understanding price change in the Australian economy

22-23 May 2023
H.C. Coombs Centre
122A Kirribilli Avenue, Kirribilli NSW 2061

The pandemic, international conflict, and natural disasters have led to disruptions in demand, supply and labour markets resulting in price changes not seen in the Australian economy for several decades. As Governor Lowe has put it, Australia has experienced “a very large inflation surprise” (speech to the Anika Foundation, Sydney 8 September 2022). Understanding the dynamics of these price changes requires analysis below the macro – ideally the interaction of individual economic actors at the regional and sectoral levels.

The effects of these disruptions have been experienced in different ways across sectors, influenced by levels of competition, types of businesses and regional differences, and this has led to different outcomes in the speed and size of prices increases that have been passed along the supply chain.

The impact on types of households has also differed and resulted in changes in the observed patterns of household spending.  The ABS is exploring the use of rewards card data to inform detailed expenditure by households and is designing a new Living Cost in Australia Survey to collect income, housing, and wealth data.

While wages growth is picking up from the lows of recent years, the current tight labour market has not yet generated real wage growth for many workers. Analysis of microdata can provide insight into contemporary remuneration practices (for example the use of non-wage remuneration) and the price setting behaviour of businesses.

The pandemic also placed significant stress on the provision of services in the non-market sector – health, disability and aged care, and education – resulting in increased costs and higher prices borne by government or consumers. This has highlighted the challenges in understanding the productivity performance of these sectors, their cost/funding models, and the interaction with the market economy (particularly in the competition for labour).

Research utilising detailed timely microdata is providing fresh insights into how these disruptions are being experienced across types of businesses and households.

The conference will explore how this data, and associated new measurement approaches, can inform contemporary research and policy questions into the dynamics of price change in the Australian economy.

The pandemic, natural disasters, and geopolitical events have led to supply shocks which have had significant impacts on prices. The intersection of these supply chain impacts and the level of competition in sectors of the economy has contributed to the price shocks flowing through the economy. How can the use of business microdata sets assist in understanding these mechanisms?

The role and benefits of deep data in delivering the ACCC’s mission to promote competition and make markets work in the interests of consumers, businesses and the economy

Abstract: In reporting on and understanding competition issues across the economy, the ACCC relies heavily on its statutory information gathering powers, which include the compulsion of firm-specific data.  In recent times, we have been looking at particular sectors that have been impacted by external shocks such as the COVID-19 pandemic, geopolitical issues and natural disasters. The ACCC is also frequently directed to examine sectors experiencing more durable or ‘secular’ shifts in demand or supply conditions and where market failure is more likely to be prevalent.  This paper uses recent examples of the ACCC’s work to highlight the critical role that data plays in informing our inquiries and enforcement work – including on digital platforms, gas, petrol, child care, stevedoring and insurance markets. The paper also looks at the potential benefits of increasing access to microdata sets by the ACCC and other regulators, in terms of both targeted market studies well as identifying market failures and instances of competitive misconduct.

What can we learn about industries’ vulnerability to overseas price shocks from Merchandise trade data in BLADE?

Abstract: Inflation overseas can impact domestic inflation through rising import prices and strong overseas demand for Australian exports. Imports can include both consumer products and inputs for domestic goods and services. This paper explores the Merchandise Trade data collected by the Department of Foreign Affairs and Trade, which is integrated with the Business Longitudinal Analysis Data Environment (BLADE). How useful is this dataset for identifying which products are imported by which industries? How informative is the data on the value of shipments? And is it possible to estimate the elasticity of demand for particular inputs in particular industries, as a measure of likely cost pass-through?

The unemployment rate is as low as it has been for decades and there are wide-spread reports of labour and skills shortages; meanwhile the most used measures of wage inflation remain stubbornly low. Can detailed data and associated analysis of the labour market and relationships between employers and employees help explain this phenomenon?

Why do we have slow wage growth when the rate of unemployment is 3.5 per cent?

Abstract: This presentation will address two main questions about wage growth in Australia: Why has wage growth declined over the past two decades? and why hasn’t wage growth increased more as the labour market has got tighter since 2021? The main potential answers to each question will be reviewed, using both analysis of ABS aggregate-level data and existing literature. Conclusions from, and limitations of, the analysis will be used to suggest ways in which ABS micro-data might be used to make further progress in understanding wage growth in Australia.  

Using new data sources to understand and monitor changes in prices, wages and incomes

Abstract: New, timely administrative datasets are opening up new ways for policymakers to understand and monitor changes in prices, wages and incomes. This paper gives an overview of some of the ways that Reserve Bank has been making use of these new data, including constructing new timely measures of labour income, and measures of income for different demographic groups, and across the income distribution. It also discusses early insights drawn from a recently linked dataset made up of firm administrative data and web-scrapped price data, as well as the potential to leverage this new dataset to better understand the pass-through of input price shocks to final prices.

Non-compete clauses in Australia: Structural policy meets economic measurement

Abstract: Non-competes – a clause of a contract where an employee agrees not to compete with an employer after the employment time period is over – are emerging as a new frontier for inclusive growth and competition policy. This is most notably demonstrated by the Federal Trade Commission’s recent proposal to ban non-competes in the United States – which follows more than a decade of research documenting their prevalence and economic consequences – but non-compete clauses are also a feature of more regulated European labour markets. Yet, little is known about the prevalence of non-compete clauses – and other post-employment restraints – in the Australian context, let alone their consequences for productivity and wage growth. Against this backdrop, we propose an analytical framework to measure the prevalence of non-compete clauses in Australia, whereby qualitative stakeholder liaison is used to inform a quantitative effort that combines ad hoc online polling with more systematic measurement, in line with global best practice.

Using Single Touch Payroll for labour market analysis

Panel Description: The Single Touch Payroll (STP) administrative dataset provides a unique opportunity for timely and detailed insights into the Australian labour market. In this panel session, officers from the ABS, RBA and Treasury will share how analysis of STP has improved their understanding of the labour market and discuss future opportunities and challenges.

As price inflation outstrips wage growth all eyes turn to the reaction from consumers and the impact of this decline in real incomes on the welfare of different population groups. What can we learn about the consumer response and the impact on living standards from the ever-increasing volume of consumer behaviour data from private sector sources?

How do consumers react to the price of food? Evidence from supermarket micro data

Abstract: How consumers react to the price of food is a question of substantial economic and health policy importance. Food makes up a substantial share of household’s overall budget, and choices between different food stuffs can have important economic and health outcomes. But analysing the impact of food prices is difficult as they evolve more rapidly than the measurement of economic statistics, and measurement of the volume of household consumption is less frequent than price measurement. This paper draws on statistics the ABS has generated from supermarket scanner data, which provides information on both the price and volume of sales of millions of individual items. Using this data the paper analyses the way that consumers are responding to price changes of a range of goods. The economic and health implications of these responses are considered, showing how the impact of price changes differs across different categories of consumption.

New Insights into the Rental Market

Abstract: This paper draws out new insights on the private Australian rental market using the ABS’s new large administrative dataset of rental properties, which is an input to the Consumer Price Index (CPI). CPI rent inflation has picked up recently. Rent increases have become more common, and larger on average over the past year. Each month, around 2-3 per cent of the properties in the dataset had a change in tenants; increases in rents have been materially higher for properties with a change in tenant than for the stock of rental properties. Rents have increased across inner city, regional areas and states over the past year. This is in contrast to the experience during the pandemic during which time rents fell in many suburbs close to the CBD but increased in regional areas amidst a preference shift among many households for more space.

The Effects of Changes in Unemployment Benefits on Consumer Spending: Evidence from the Australian JobSeeker Supplement

Abstract: In response to the COVID-19 pandemic, the Australian government implemented the biggest increase in unemployment benefits in Australian history. The introduction of the JobSeeker supplement represents a natural experiment to gauge the causal effect of a very large change in unearned income on consumer spending. Using bank transactions data, we estimate that consumer spending increased by more than 50 cents for each dollar of supplement received. The increase in benefits was mostly spent on groceries, debt and rent repayments. The sensitivity of spending to unemployment benefits was stronger for Jobseekers that were liquidity constrained, though even those with large bank deposit balances significantly increased their spending. There was basically no consumption response to the expiry of the supplement as Jobseekers still held high levels of liquidity. Our results are important for quantifying the impact of the stimulus policies during the COVID-19 pandemic and highlight the importance of household liquidity in the design of policies to protect the economy from future recessions.

Multilateral index number methods for Consumer Price Statistics 

Abstract: The increasing availability of supermarket scanner data covering expenditures and prices on a wide range of products has created new opportunities for national statistical institutes, including the possibility of publishing more reliable indicators of monthly price changes. We discuss and evaluate the properties of different multilateral index numbers for measuring high frequency price changes, drawing on household scanner data. We find that use of the Caves-Christensen-Diewert-Inklaar (CCDI) index, updated using the mean splice, is to preferred for both theoretical and empirical reasons.