What changes in prices and their collection tell us about Australia

How the prices of goods and services have changed is not only an enduringly, topical conversation point, it offers a fascinating insight into society and the Australian economy. This article looks at how prices and their collection have changed over time to provide a measure of inflation for Australia.

Prices for food, groceries and average house rents have been collected across Australia since 1901, with some prices collected by individual states for even longer.

The work to develop an index to enable the estimation of price change and the associated impact on living costs began in 1910 with Australia’s first Commonwealth Statistician, George Knibbs, noting:

‘Probably no subject has recently attracted a greater amount of public attention than the extent of variations in prices, a matter which, in its relation to the cost of living, is fraught with importance to every section of the community..’¹

In 1912, the first report on 'Prices, Price Indexes and Cost of Living in Australia' was published². The report was based on price information collected via a survey of ‘Grocers, butchers, and milk vendors patronised to a considerable extent by families of wage-earners’³. It was conducted across the capital cities of the six States and an additional 30 large towns (see Appendix 1 for towns originally included).

Nowadays, the CPI collects prices on a plethora of goods and services from a very wide range of businesses across each of the capital cities (now including Canberra and Darwin) reflecting the significant economic and social changes that have happened in Australia since the early 1900s.

The CPI basket is regularly updated to reflect the changing consumption patterns of Australian households. The make-up of the CPI basket has two aspects: the weights contained in the basket; and the goods and services included in the basket.

Both aspects have been updated over time to ensure the CPI remains representative of the average expenditure of Australian households. These updates have become more frequent over time, reflecting the increased pace of change - both in terms of people’s spending patterns and the goods and services available to buy.

Early weights used for price indexes were based on the spending patterns of wage earners and their families, reflecting the primary purpose of the indexes to set wages. Today, the weights in the CPI reflect the relative amount spent on different goods and services as a proportion of total spending by all households. Looking at how the weights in the CPI have changed over time offers an insight into how the consumption patterns of households have evolved (see Table 1).

Over time, as a proportion of their total spending, households have spent relatively less on food, clothing and furnishings and more on housing, holidays, health and education. These changes reflect a range of social and economic changes including:

• Shifts in spending away from domestically produced products to cheaper imports.
• Lower prices as production methods improved along with the introduction of new technologies.
• Higher household disposable incomes, particularly as more women joined the workforce.
• More leisure time as modern household equipment like washing machines and dishwashers reduce the amount of time spent on domestic chores.
• More use of services from takeaway food to housecleaning and childcare.

When the ABS first measured consumer price inflation in 1912, only three product categories were included in the Retail Price Index basket: food, clothing and rent. In all, there were 46 items priced including bread, flour, tea, coffee, sugar, rice, sago, jam, oatmeal, raisins, currants, starch, soap, potatoes, onions, kerosene, candles, milk, butter, cheese, eggs, bacon, ham, beef, mutton, pork.  Fast forward 100 years and the use of new data sources and collection techniques, such as scanner data and web-scraping, means that the CPI basket now contains over 100,000 items with millions of prices being collected each quarter.

Table 2 summarises the major changes to the CPI basket over the years and shows the evolution of life in Australia from candles to electric light globes and toasters through to electric vehicles and mobile phones.

Goods and services are also removed from the CPI basket as they become either obsolete or no longer representative of spending by Australian households. Some examples over the years include mutton, kerosene, cassette tapes, VCRs, DVD hiring, comic books, and international calling cards.

Mortgage interest charges are also no longer included in the CPI basket, though they are included in the ABS’s Selected Living Cost Indexes. This change reflects a shift in the primary purpose of the CPI away from its previous use to set wages towards its use to inform economic and monetary policy decision making.

The prices we pay for goods and services change over time for a range of reasons including quality changes, changes in production methods and costs, taxation rates, product availability, and social desirability. Comparing the price Australians pay for products now with what those prices would have been if the earlier prices were adjusted solely by the overall rate of consumer price inflation highlights some of these social and economic changes. While not explored in this article, there are other ways in which these prices changes relate to the change in Australians' purchasing power and living standards over time.

When compared to overall CPI inflation, prices across food and grocery items show that some things are relatively more expensive now than they were 50 years ago, others are cheaper and still others are about the same. Bread has seen the largest increase in relative price since 1973, with a basic loaf of white bread bought in a supermarket costing $4.40 in 2023 compared to $0.20 in 1973 (or $2.30 in today’s money) for a similar sized loaf delivered to home. Other items that are relatively more expensive today include laundry detergent, tea, and potatoes. On the other hand, bacon, eggs, flour, rice, butter, and milk are all cheaper today than the average prices paid in 1973 adjusted for overall inflation.

Prices for products such as cigarettes and alcohol are affected by changes in taxation rates, as well as changes in production costs. A pack containing 25 cigarettes in 1973 was about 49 cents or $5.44 after inflation, compared to $48.10 on average today. A six-pack of beer was around $1.40 ($15.75) compared to around $23.50 today.

Fuel prices have also risen more than overall inflation over the past 50 years. A litre of both diesel and petrol were about 10 cents ($1.11 adjusted for inflation) in 1973 compared to $2.00 for petrol and $2.10 for diesel in 2023.

One thing that has fallen in relative price over this time is domestic airfares. In 1973, a return flight between Sydney and Melbourne cost around $54 ($598.90 in today’s money), nearly half the average weekly wage at the time. This compares to today’s price of around $270 for the trip which represents just under 20 per cent of the average weekly wage in May 2023. 

The CPI includes prices for common recreational activities like going to a game of AFL, NRL or the theatre, rather than prices for larger but rarer events such as grand finals or concerts with big name international acts. Nonetheless, it’s interesting to look at a couple of these events as they are indicative of price changes for these activities and the challenges sometimes faced in trying to measure pure price change.

In 1970, the AFL was still the Victorian Football League and the grand final did not feature the big pre and post-match or half-time performances that are now included. Looking at prices over time, a standing room ticket for the 1970 VFL grand final at the MCG cost 80 cents ($11.00 adjusted for inflation), while a similar ticket for the 2023 final cost $155, though all tickets now require sitting! It is even more difficult to compare concerts with big name artists over time. For instance, people paid ‘up to $3.70’⁴ ($62.60 adjusted for inflation) to attend the Beatles concert in 1964 whereas tickets to next year’s Taylor Swift concert cost up to $1,249.90. While both are incredibly popular, there are significant differences between the two events including the size of the venue as well as the staging and length of the performance with the Beatles performing for around 30 minutes versus Taylor Swift’s almost three hours.

Price collection in the CPI traditionally involved an ABS field officer collecting price and product information by visiting retail outlets in person or speaking with them over the phone. This is a relatively costly and inefficient approach when compared to other data sources, such as administrative data. Administrative data is information collected for other purposes by governments and businesses that can be used for the compilation of official statistics. In recent years, the ABS has been making more and more use of administrative data to produce the CPI.

The most significant progress has been the introduction of transactions 'scanner' data in 2014. Scanner data refers to the transactions that are recorded (or ‘scanned’) at the retailer’s point of sale. Scanner data is high in volume and contains detailed information about individual transactions, including date of purchase, quantities bought, product descriptions and value of products bought. The scanner data contains a census of the products sold, which means more products are included in the CPI basket, and at the same time, reduces data collection and processing costs. Scanner data and other administrative data is now used to measure price change for around half of the CPI basket.

In addition to administrative data, the ABS has been gradually introducing online data collected by ‘web-scraping’ processes to replace manual price collection across several CPI products. Web-scraping makes use of automated software to extract large amounts of prices and product information from websites. Prices can be collected as often as needed for all products using purpose-built programs that scan retail websites to find the relevant information.

The ABS collects significantly more prices, more often, using these methods. Today over 1 million prices are collected every quarter, some on a daily or weekly basis.

With scanner data containing both price and revenue information, in 2017 the ABS introduced an innovative method to make greater use of these data in the CPI. This new method, known as a 'multilateral index method', makes use of the revenue information to update the weights for each of the products every quarter. The ABS is one of the world leaders in the use of multilateral index methods in the CPI. For more information see An Implementation Plan to Maximise the Use of Transactions Data in the CPI.

In 2018, the ABS began annually updating the CPI weights using Household Final Consumption Expenditure (HFCE) data from the National Accounts. Prior to this, the CPI weights were updated every 5-6 years. Annual re-weighting improves the accuracy of the CPI by better capturing changes in household spending patterns. For more information see the An Implementation Plan to Annually Re-weight the Australian CPI.

Australia is an outlier in the frequency of its measurement of inflation. Most economically advanced countries produce their CPI on a monthly basis. Australia is one of only two of the 38 OECD member countries to produce the CPI quarterly, the other being New Zealand.

While there has long been demand for a monthly CPI, recent years saw the introduction of new data sources, such as scanner data, and the wider availability of administrative data. This made it less expensive to produce data on a monthly basis, which in 2022 saw the introduction of the monthly CPI indicator. The monthly indicator makes uses of existing CPI data to produce a more-timely, albeit limited, indicator of inflation.

In the 2023-24 Budget, the Government provided $156.3 million to the ABS over the forward estimates for phase 2 of the Big Data Timely Insights program. Phase 2 involves continuing to rebuild and modernise the ABS’s IT systems and delivering a complete monthly measure of the CPI. Australian Statistician Dr David Gruen AO said: “A complete monthly CPI will better inform monetary and fiscal policy decisions that have a direct impact on all Australians”. A complete monthly measure of the CPI, including the first 12 months of monthly data, will be available by the end of 2025.

1. Commonwealth Bureau of Census and Statistics (CBCS), Price Indexes and the Cost of Living in Australia, Labour and Industrial Branch Report No.1, 1911
2. CBCS, Price Indexes and the Cost of Living in Australia, Labour and Industrial Branch Report No.2, 1912
3. CBCS, Price Indexes and the Cost of Living in Australia, Labour and Industrial Branch Report No.2, 1912
4. The Beatles let it be in Australia: 1964 (smh.com.au)