CHAPTER 1 INTRODUCTION


AIM OF THIS PUBLICATION

1.1 The Australian Consumer Price Index (CPI) is an important economic indicator. It measures price changes facing households. It is compiled according to international standards, and is based on robust data collection and compilation methodologies. This publication provides a comprehensive description of price index theory and methodology, focusing on the Australian CPI and the concepts, sources and methods behind its compilation. It also provides some insight into the kinds of conceptual and practical difficulties that the Australian Bureau of Statistics (ABS) encounters in compiling the CPI, and how it deals with these challenges.

1.2 The ABS currently publishes a set of Frequently Asked Questions (FAQs) and a brief description of the CPI in A Guide to the Consumer Price Index: 16th Series, 2011 (cat. no. 6440.0). The Guide is for those interested in a straightforward and brief account of the main features of the CPI. This Concepts, Sources and Methods publication, on the other hand, is for those users who require a deeper understanding of the CPI, and of the methods and techniques used to deal with the complex situations that arise in constructing price indexes across the spectrum of household consumer expenditure.


OTHER SOURCES OF INFORMATION ABOUT THE CONSUMER PRICE INDEX

1.3 The CPI is compiled quarterly by the ABS for quarters ending on 31 March, 30 June, 30 September, and 31 December each year. The quarterly index numbers are usually published between three and four weeks after the end of each quarter in the publication Consumer Price Index, Australia (cat. no. 6401.0).

1.4 The CPI is currently reviewed and re-weighted every six years.

1.5 The current CPI is the 16th series since it was first published in 1960 and uses data from the latest Household Expenditure Survey, Australia: Summary of Results, 2009-10 (cat. no. 6530.0). It was introduced in the September quarter 2011 following a major review. As well as updating the weights in the CPI basket, the review looked at the uses, concepts and purpose of the CPI and confirmed the principal purpose of the CPI is to measure inflation faced by households to support macroeconomic policy decision making. As part of the 16th series review, the ABS published a number of Information Papers:

• Issues to be considered during the 16th Series Australian Consumer Price Index Review, Dec 2009 (cat. no. 6468.0);
• Outcome of the 16th Series Australian Consumer Price Index Review, Dec 2010 (cat. no. 6469.0); and
• Information Paper: Introduction of the 16th Series Australian Consumer Price Index, 2011 (cat. no. 6470.0).

1.6 These papers describe the review process, the issues considered, the review outcomes, the re-weighting process and outline the changes from the previous series.

1.7 The 15th Series CPI introduced in the September quarter 2005 was a minor review. The item weights were revised in line with expenditure patterns identified in the 2003-04 Household Expenditure Survey (HES) and a new sub-group called Financial services was introduced into the CPI. The ABS published an Information Paper describing the changes:

• Information Paper: Introduction of the 15th Series Australian Consumer Price Index, 2005 (Reissue) (cat. no. 6462.0).

1.8 The 14th Series CPI was introduced in the September quarter 2000, after a minor review completed early in 2000. The changes introduced in the 14th series were considered necessary to address issues arising from the introduction of The New Tax System (TNTS) on 1 July 2000. As part of the review process the ABS published two Information Papers describing the changes:

• Information Paper: Price Indexes and The New Tax System, 2000 (cat. no. 6425.0); and
• Information Paper: Introduction of the 14th Series Australian Consumer Price Index, 2000 (cat. no. 6456.0).

1.9 The 13th Series CPI, which followed a major review of the index, was introduced in the September quarter 1998. Several important changes were made to the index at that time. Prior to the September quarter 1998, the CPI was compiled primarily to be used for income adjustment through wage indexation. This had implications for the coverage and design of the index. It was limited to the expenditures made by households whose principal source of income was wages. It measured out-of-pocket living expenses, including mortgage interest payments.

1.10 Since the September quarter 1998, the principal purpose of the CPI has been to measure inflation faced by households to support the operation of macroeconomic policy decision making. The CPI covers the expenditures of all households (not just those whose principal source of income is wages, as was the case before 1998) and measures the changes in the prices of a basket of goods and services acquired each period. The cost of housing is measured as the price of a new home (excluding land). Mortgage interest payments are excluded.

1.11 As part of the 13th Series review, the ABS published three Information Papers:

• Information Paper: Issues to be Considered During the 13th Series Australian Consumer Price Index Review, Apr 1997 (cat. no. 6451.0);
• Information Paper: Outcome of the 13th Series Australian Consumer Price Index Review, 1997 (cat. no. 6453.0); and
• Information Paper: Introduction of the 13th Series Australian Consumer Price Index, 1998 (cat. no. 6454.0).

1.12 In recognition of the interest in the extent to which the impact of price change varies across different groups in the community, in addition to the CPI, the ABS compiles Analytical Living Cost Indexes for Selected Australian Household Types (cat. no. 6463.0) and the Pensioner and Beneficiary Living Cost Index (cat. no. 6467.0).

1.13 The ABS intends to update this manual periodically. Therefore, the ABS would welcome comments from the users of statistics covered in this publication. You may direct your comments or questions to:

Consumer Price Index Section
Australian Bureau of Statistics
PO Box 10
BELCONNEN, ACT, 2616
Telephone: 02 6252 6654
Fax: 02 6252 7060
Email: prices.statistics@abs.gov.au