6461.0 - Australian Consumer Price Index: Concepts, Sources and Methods, 2005
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 17/08/2005
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COMMUNICATION TABLE 8.8: COMMUNICATION GROUP INDEX STRUCTURE
Specific issues Price collection 8.107 Prices for postal services are collected once every month. They cover a range of postal charges including those for standard letters, common sized parcels and international mail. The prices are collected centrally as the charges apply nation-wide. 8.108 Prices for telecommunication services are also collected centrally as prices for particular services normally do not vary between cities. Price collection is conducted monthly from a sample of telecommunication providers. Areas requiring special pricing procedures 8.109 It is difficult to price 'bundled packages' on a constant quality basis where charging rates are linked to frequency of use or duration of the telephone calls. In these cases, the rate of discount often varies according to usage, which makes it difficult to select the appropriate level of use upon which to base the price movement measure.(footnote 1) Pricing of the individual services is used to estimate overall price movement. 8.110 The prospect of broader 'bundling', where single suppliers provide packages which combine together different types of services (e.g. telephone services, subscription television services and broadband Internet services) is likely to cause more problems. It would be very difficult to determine the price movement of the components in the bundle separately, as well as identifying and adjusting for quality change according to each particular type of service. This problem is particularly troublesome when the services overlap different CPI groups. The ABS will continue to monitor developments and seek to identify methods for dealing with this issue. Adjusting for quality 8.111 One of the most difficult issues related to pricing telecommunication services is attempting to price the services on a ‘constant quality’ basis. Service providers are constantly developing new pricing plans to counter competitive pressures, (e.g. offering different mixes of services). In concept, these changes should be incorporated into price calculations to ensure that telecommunication services are priced to a constant quality. However, there are practical difficulties involved in attempting to adjust for these changes as plans are often charged on a complete suite of services basis. As such, prices for the individual components of the plan are usually not separately available. In these cases, it is often difficult when comparing different plans or modifications to the composition of plans to objectively separate the individual services or quality change from the ‘pure’ price change. RECREATION 8.112 All expenditure on recreational products, sporting and recreational activities, holiday travel and holiday accommodation is included in the Recreation group. The Recreation group accounted for approximately 12 per cent of the CPI basket at the time of the 14th series review. 8.113 Table 8.9 shows the structure of the Recreation group. Examples of products priced and the data sources are also shown in the table. TABLE 8.9: RECREATION GROUP INDEX STRUCTURE
Specific issues Price collection 8.114 Most products in this group are priced quarterly. The exceptions are holiday travel and accommodation, computer equipment and software, and newspapers and magazines, all of which are priced monthly. Prices for newspapers and magazines, computer equipment and software, overseas tours and domestic air fares are collected centrally. Prices for all other products are collected locally. Field officers collect prices for holiday accommodation from respondents in their own state even though many of these prices will be used to calculate indexes for cities other than their own. Areas requiring special pricing procedures Audio, visual and computing products and services 8.115 The ABS does not directly price computer equipment purchased by the CPI population because of the complexity involved in pricing such products. Instead, the price movement is estimated using the US Bureau of Labor Statistics (BLS) personal computer and peripheral equipment index for the hardware component and the BLS computer software and accessories index for the software component. The BLS indexes are calculated hedonically to account for quality changes in computers and software over time. Adjustments are made to the BLS indexes to allow for exchange rate influences and a lag is applied to account for the time taken to ship the computer products to Australia from the USA. In February 2005 the ABS proposed the introduction of an Australian hedonic price index to quality adjust price changes for personal computers; the proposal is detailed in The Introduction of Hedonic Price Indexes for Personal Computers (cat. no. 6458.0). Books, newspapers and magazines 8.116 Book prices for the CPI are based on the actual transaction prices paid by consumers and not the recommended retail prices stated on the books. In the case of books sold through book clubs and mail order outlets, discounts are often available but are normally based on the total dollar value of book purchases. If the discounts do not relate specifically to a particular book, they are not recorded for the CPI. Sports and other recreation 8.117 Toys and games are subject to fashion changes, making it difficult to price a particular toy over a long period. To deal with such problems, mainly long-term favourite toys and games are priced. Regular discussions are held with manufacturers to ensure that the appropriate items are priced. Holiday travel and accommodation 8.118 Domestic holiday travel prices and overseas holiday travel prices are collected from different sources and are influenced by different factors. For example, changes in foreign currency exchange rates are likely to affect overseas travel prices quite significantly but will only have a minimal effect on domestic travel prices. In contrast, Australian school holidays will have a major impact on the cost of holiday accommodation within Australia but will have minimal impact on overseas travel prices. 8.119 Most holiday travel, particularly airfares, is booked in advance. Prices for airfares also tend to vary depending on how far they are booked in advance, the day of the week and the time of day the trip is taken. As the Australian CPI is compiled on an acquisitions basis, air-fares are collected in advance (at the time of payment) and lagged so that, when the index is calculated, the price movement matches the time when the travel would be undertaken rather than the time at which the ticket was purchased. Airfares are normally offered with extra fees and charges added to the base fare e.g. passenger service charges and noise levies. For CPI purposes these fees are included in the price of the airfare as, for most consumers, they can be considered inescapable costs of purchasing the airline travel. Quality adjustment Audio, visual and computing products and services 8.120 Audio and visual products are subject to frequent changes in styles and models. These changes quite often improve the quality of the products. Where the product currently priced for the CPI has been subject to such changes, an adjustment is made to ensure that the concept of pricing to ‘constant quality’ is maintained. 8.121 Computer products are likely to continue experiencing significant technological and quality improvements and conceptually, these changes will need to be reflected in the CPI prices. Since the ABS estimates are based on the US BLS computer indexes, no quality adjustments are made to the ABS price estimates as quality changes would have already been taken into consideration in the BLS indexes. Books, newspapers and magazines 8.122 Collecting book prices on a 'constant quality' basis over an extended period of time can be a problem for particular types of books, for instance, fiction titles. Books on the top ten best-seller lists are used as a guide to select books for pricing but the popularity of these titles is likely to decline after a period of time. When that happens a replacement with identical quality and specifications will be required. However, books in the top ten best-seller lists are usually not comparable to one another in terms of size, content and price and finding a suitable replacement can be difficult. One of the strategies the ABS adopts to minimise the problem is to price books by particular authors who have been producing similar quality best selling novels over a relatively long period of time. Sports and other recreation 8.123 Measuring the change in quality of recreational activities such as attending a concert or watching a movie is very subjective as the change in utility resulting from a better concert or movie is likely to differ between individuals. However, the variation in utility is considered to not be very significant and no quality adjustments are applied. Items that have a time component (e.g. club membership) will be adjusted if the time component of the service being bought changes significantly. Holiday travel and accommodation 8.124 Measuring quality change in holiday travel is also a highly subjective task. For example, it is very difficult to gauge the quality change resulting from improved seating in aeroplanes or better quality hotel rooms being included in holiday/airfare packages. Quality adjustments are generally not applied to holiday travel items unless the quality change is significant and there are reasonable means of quantifying the change. Seasonal factors 8.125 Certain types of books and some types of sports or recreational activities are affected by seasonal factors and are available for certain periods only. For example, many university textbooks are available at the beginning of the education year only. In this case, the university textbook prices in other pricing periods will be imputed based on the prices of similar items that are available. Where annual subscriptions are concerned, prices are carried forward until the same quarter in the following year when the subscription will next be priced. EDUCATION 8.126 The Education group includes all expenditure on primary, secondary and tertiary education, and preschool services. It accounted for just under 3 per cent of the CPI basket, by value, at the time of the 14th series review. 8.127 Table 8.10 shows the structure of the Education group. Examples of products priced and the data sources are also shown in the table. TABLE 8.10: EDUCATION GROUP INDEX STRUCTURE
Specific issues Price collection 8.128 Preschool education prices are collected from traditional preschool education centres and child care centres that provide preschool education. Unlike fees charged by the traditional preschool education centres, fees paid for preschool care offered through child care centres are eligible for the child care rebate (refer to the section on subsidies later in the Chapter). Eligibility for the rebate is determined by family income level and prices are adjusted to a subsidised basis using a model to estimate the impact of the subsidy on prices paid. 8.129 Fees for primary and secondary education are collected from both government and private schools. Prices are collected only at the commencement of the school year, since fees are reviewed only once a year. The fees are separated into ‘tuition fees’ and ‘other fees’. Included under the component ‘other fees’ are charges associated with attending the school but which are not normally considered to be part of tuition fees although they must be paid. Examples of these fees are book fees, payments for excursion trips, school building funds, camp fees and swimming lesson fees. 8.130 Tertiary education fees are collected from universities, and Technical and Further Education (TAFE) colleges. Fees are divided into ‘course fees’ ; and ‘administration fees’. Common items included in ‘administration fees’ are enrolment fees, book and library fees, and student association fees. 8.131 The Australian government charges all tertiary students a student contribution fee under the Higher Education Support Act (HESA). For CPI purposes, the student contribution is treated as a cost directly related to tertiary education and so it is included as part of tertiary education fees. The student contribution payments data are obtained from tertiary institutions. Subsidies 8.132 Child care benefits are payments made by the Australian government to assist working Australian parents meet the cost of leaving their children in preschools (operated by child care centres) while they are at work. For CPI purposes, the child care benefit payable for preschool care is deemed to be a subsidy directly related to the cost of preschool education and in accordance with the principles stated in Chapter 7, the subsidy is deducted, where applicable, to arrive at a 'subsidised fee'. Quality adjustment 8.133 Applying quality adjustment to educational services can be very subjective as the factors determining the quality of the services are very difficult to measure. Factors affecting the quality of education include the standard of teaching skills and the quality of the equipment provided to students. These factors can have an impact on the quality of the service but no quality adjustments are made for such changes due to the problems associated with measuring them accurately. 8.134 The introduction of new charges or fees is an area where quality adjustment is sometimes applied. If the extra charge or fee is accompanied by an improvement in the quality of education, the change in quality will need to be adjusted out in accordance with the concept of pricing to ‘constant quality'. A typical example is when a school decides to introduce a building fund fee to cover the construction of a new extension to the school building. If the building extension results in a better learning environment, which improves the quality of the students' education, the fee increase will be quality adjusted. In many cases, however, it is difficult to determine whether the new fee payment is related entirely to a change in the quality of education or a pure price rise, or a combination of both. For this reason, the treatment of new fees and charges is decided on a case-by-case basis. MISCELLANEOUS 8.135 Goods and services priced in this group include expenditure on non-life insurance services (other than health insurance), personal care goods and services, and child care services. The Miscellaneous group accounted for approximately 4 per cent of the CPI basket at the time of the 14th series review. 8.136 Table 8.11 shows the structure of the Miscellaneous group. Examples of items priced and the data sources are also included in the table. TABLE 8.11: MISCELLANEOUS GROUP INDEX STRUCTURE
Specific issues Price collection 8.137 All products in this group are priced once every quarter. Field officers collect the prices via personal visits to the relevant organisations. 8.138 Included under insurance services are motor vehicle insurance, household property and contents insurance (health care insurance is excluded from this group and is classified under the Health group). To monitor price movements of insurance services, representative ranges of different risk categories are priced for insurance cover and are collected quarterly. The risks vary due to different demographics of the insured consumer (e.g. for vehicle insurance) or due to location within various risk zones in a city. Taxes and other government fees and charges associated with the provision of the insurance service (e.g. stamp duty) are collected as part of the premium because they are an inescapable cost of purchasing the insurance service. 8.139 Child care services priced cover full-time, part-time and occasional care. Respondents are selected from each of the community-based, private company and family-based day care sectors of the industry. Areas requiring special pricing procedures 8.140 Due to the practical difficulties associated with collecting the estimated cost of the insurance service as a premium net of claims, the gross insurance premium is collected as a suitable proxy value from which to measure price movement. Generally, the assumption underlying this practice, that the cost of the insurance service is proportional to the premium, will hold and so the proxy is representative over the long term. However, occasionally factors that influence the gross premium, but not the true insurance service cost, may change. For example, an unexpected catastrophic natural disaster may raise significantly the proportion of consumers making claims. However, the individual cost of servicing these claims would not be affected. Following the event, companies might raise gross premiums to recover the unexpected claim payments. Subsidies 8.141 Parents with children in approved child care centres are eligible to claim a Child Care Benefit (CCB). As the amount of benefit received by parents varies according to income, the collected gross fees are adjusted to subsidised fees using an income-based model (the subsidised price of child care is equal to the gross fee less the amount of benefit). The model is adjusted annually to reflect changes in benefit rates and quarterly to reflect changes in aggregate income levels using data from Labour Price Index, Australia (cat. no.6345.0). Incomes are indexed quarterly as any change in a family’s circumstances (e.g. a parent leaves or enters the workforce, or a wage rise is received) will affect their income from the time it occurs regardless of when the Family Assistance Office (FAO) is notified. (footnote 2) As the new CCB rates are applicable from 1 July each year, the estimated benefits typically increase in September quarter, and then usually decline over the subsequent three quarters reflecting the impact of rises in aggregate incomes. The benefits are subsidies directly related to child care services and so the conceptual treatment of subsidies outlined in Chapter 7 is met. Quality adjustment 8.142 To ensure that the requested insurance cover is of ‘constant quality’ over time, the values of the contents, properties and vehicles represented by the specifications are updated on a regular basis to maintain a real level of value. The ABS regularly discusses these valuations with the insurance companies to ensure that representative insured valuations are used for pricing. 8.143 Personal care services are difficult to adjust for changes in quality. For example, trying to assess the change in the quality of a haircut (due to change in style rather than competence of the hairdresser) would be highly subjective. As a result, quality adjustments are rarely applied to personal care services. 8.144 Changes in the quality of child care are also difficult to assess because of the subjective nature of measuring effects such as changes in staff experience and training. Therefore, no quality adjustments are made for such changes. Footnotes 1. A possible method that could be used to overcome this problem is to obtain a sample of customer bills and to reprice the bills at current charging rates for several periods. This would provide a constant usage behaviour from which to measure price movements between different quarters. This method is currently under investigation by the ABS.< Back 2. At the beginning of each financial year families report their expected annual income to the Family Assistance Office (FAO). Expected and actual incomes are reconciled at the end of each financial year and, for families where the two differ, a refund or additional payment will result. The quarterly indexation of incomes for the purposes of the CPI provides an estimate of changes in benefits as they accrue. < Back
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