6461.0 - Consumer Price Index: Concepts, Sources and Methods, 2011
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 19/12/2011
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8.4 The grouping of items into collections is pragmatic. This is done for similar reasons to ordinary consumers who are faced with difficulties moving around large cities. Items are not formed into collections for ease of index estimation. The collection and use of prices for alcoholic drinks is a good example of this. Alcoholic beverages are sold in two ways:
8.5 Therefore Consumer Price Index (CPI) field officers collect prices for all types of alcoholic drinks from hotels and bottle shops and once collected the prices are re-sorted into the CPI compiler’s perspective, that is categorised into beer, wine and spirits for use in index estimation. 8.6 The ABS does not use list prices or recommended retail prices without first checking that these are the prices charged to customers by respondents. Special and discounted prices are taken into consideration when these are generally available to the buying public. An important test of whether these prices can validly be used in compiling the CPI is whether the goods are of a quality identical to that in the item specifications (e.g. the goods are not damaged or superseded stock). Another test is that the goods are available in quantities sufficient for shoppers generally to buy them on the pricing date (i.e. supplies are not limited to so-called early-bird shoppers, or purchases subject to some other restriction). 8.7 Although special and discounted retail prices are readily observable for most goods, it is not necessarily so for large and expensive durables. Take motor vehicles as an example. The prices of motor vehicles may not be advertised widely and may be disguised with bonuses, trade-ins, factory cash-back offers and a package of extra features included for the list price of the vehicle. In these cases, substantial effort, including interviews with senior sales staff, is made to ensure that full particulars of the transactional prices are obtained. 8.8 Where prices are set centrally and do not vary by location, the prices are collected from the supplier's head office. Postage charges are a good example of this. MISSING OBSERVATIONS 8.9 Sometimes it is not possible to collect the price of an item in a particular period. This can be caused by various circumstances, with a common one being that the item is out of stock in the outlet sampled. Paragraphs 4.64 - 4.67 in this manual describe several ways of dealing with temporarily missing price observations. The procedure most commonly used in the Australian CPI is to impute a movement for the missing item based on the price movements of the other items in the sample. The implicit assumption behind this procedure is that if it had been possible to collect the price of this item, its price would have changed in line with similar items. Mostly this is a reasonable assumption and will provide an acceptable outcome for the index. However, this method is inappropriate when a product has no close substitutes or its price is collected annually. In these cases, a more appropriate method of imputation is to repeat the previous price. EDITING BY FIELD OFFICERS 8.10 Editing commences during price collection by field officers. The handheld computer used to collect the prices has facilities designed to help the field officers edit the information as it is being collected. Examples of these edit checks are:
8.11 Further editing checks, mainly to do with overall consistency, are performed back in the office. QUALITY ADJUSTMENT BY FIELD OFFICERS 8.12 Field officers are able to enter all the information necessary for quality adjustment to prices into the handheld computers. 8.13 If the field officers find that they do not have all the information needed to apply a quality adjustment, then the record is annotated and dealt with by the index compilers in the CPI central office. CHECKING BY COMPILING STAFF 8.14 The collected prices undergo further checking by the staff responsible for compiling the index. Where prices are found to be unusual (for instance, where movements are not considered representative) or not within expectations (i.e. inconsistent with knowledge gained from other sources), they are generally referred back to the field officer for verification. 8.15 Investigations are conducted to enable quality adjustments to be performed on records identified by field officers as having quality changes which were not immediately quantifiable. PRICING BASIS 8.16 The weighting pattern for the Australian CPI is based on the acquisitions concept (see Chapter 2) and so for consistency the pricing of goods and services is also based on this conceptual approach. Mostly the acquisition of a good or service occurs at the same time as the payment and so any price movements are recorded then. There are some goods and services where payment for, and acquisition of, the good or service do not coincide. In these cases, prices are recorded at the time that the good or service is acquired, and not when the payment is made. Examples where this can happen include the following:
PRICE COLLECTION FREQUENCY 8.17 As the CPI is compiled quarterly, the prices of most goods and services in the regimen are collected once each quarter. Prices of goods and services that are considered to be volatile (i.e. likely to change more than once during a quarter) are collected more frequently. A few items are priced only once a year, either because that is the known frequency that prices are reviewed (e.g. council rates) or because of seasonal availability (e.g. football matches). The general approach is to price each item as frequently as is necessary to ensure that reliable measures of quarterly price change can be calculated. Information about the frequency of collection for the various products in the index is included in the following detailed descriptions of each CPI group. These sections describe in more detail the price collection methodology used in each of the eleven CPI groups. A brief description is provided of the group’s index structure, the products priced, the frequency of collection and the types of outlets from which the prices are collected. Collection issues specific to each group are also highlighted. FOOD AND NON-ALCOHOLIC BEVERAGES 8.18 This group includes all expenditure on food and non-alcoholic beverages purchased for human consumption (pet food, for example, is included in the Recreation and culture group). The Food and non-alcoholic beverages group accounted for just under 17% of expenditure in the 16th series CPI weighting pattern, introduced in the June quarter 2011. Table 8.1 shows the structure of the Food and non-alcoholic beverages group, examples of the products priced and data sources.
Specific issues Price collection 8.19 In general, prices for processed foods are collected quarterly, but prices for fresh foods are collected monthly as they tend to fluctuate more. Areas requiring special pricing procedures Bread and cereal products 8.20 The prices of packaged loaves of bread tend to fluctuate markedly and so are priced monthly. Loaves of freshly baked bread are priced quarterly. Products such as bread rolls, which are sold by the piece rather than by weight, are excluded as it is difficult to ensure that they are priced to a constant quality. Price movements for similar products are used to represent price movements for these products. For example, price movements for bread rolls are represented by the movements in prices for loaves of bread. Fruit and vegetables 8.21 Most fresh fruit and vegetables are priced throughout the year. Seasonal items, such as peaches, plums, grapes, mandarins and mangoes, are not available in all months of the year. Price movements for seasonal items are imputed from price movements of substitute products, in this case other fruit or vegetables. Meals out and take away foods 8.22 Restaurant meals are priced at a variety of restaurant types with different levels of service and food styles. Entrees, main meals and desserts are priced separately; and to ensure adequate coverage, main meals based on several types of meat dishes and a variety of entrees and desserts, are priced. 8.23 Sometimes the distinction between an eat-in restaurant meal and a take away meal can be blurred. For example, some take away food establishments provide tables on their premises for customers to consume their food, despite their main business being a take away food outlet. A general rule used to distinguish between restaurant and take away meals is that table service is provided with restaurant meals. Where table service is not provided with meals consumed at the tables provided by an establishment, purchases will be treated as take away meals in the CPI. Seasonality 8.24 Some items in the Food and non-alcoholic beverages group have seasonal patterns, especially fresh meat, fresh seafood and fresh fruit and vegetables. When an item is out of season and unavailable, the price of the item is normally moved forward in line with changes observed in the prices of close substitutes or items in the same expenditure class. For example, citrus fruits consists of two different types of fruit: mandarins and oranges. If mandarins are out of season, then the price movement for citrus fruits generated by changes in prices of oranges is used to impute the price of mandarins. 8.25 Sometimes products that are out of season are still available, although the product may be of poor quality and in short supply. Field officers will not accept prices in these circumstances and will treat the product as though it were unavailable. Quality adjustments 8.26 Quality adjustments are frequently required for items priced within the Food and non-alcoholic beverages group. Food sold in packages (e.g. breakfast cereals) often undergo changes in packaging sizes and content mixture. To ensure that these items are priced to constant quality, the collected prices are adjusted to remove the effects of these size or content changes. 8.27 Products in the Food and non-alcoholic beverages group are also subject to regular market innovations; for example, new ingredients added to a food product, or a new formula used for an established food item. In these cases, it is sometimes difficult to decide whether to treat the innovation as a quality adjustment to an existing product, or to assume that a new product has been put on the market. Generally, the choice of treatment will depend on analysis based on sales and market information and close monitoring of the modified products for an extended period. 8.28 Parts of the Food and non-alcoholic beverages group where quality is an important issue are fresh meat, seafood and vegetable products. Mincemeat, for example, is usually available as standard or premium grade, and considerable care is taken by field officers to ensure that comparable grades are priced in each period. Regular assessments of the consumption of each grade are also conducted to ascertain which grade should be priced. Prices of most meats are taken from the prices displayed in the shops which are usually quoted per kilogram. However, some particular cuts of meat are sold as an item or per piece. In these cases, where the weight of the item is available (e.g. a leg of lamb) the weight of the item and the associated price are collected to enable a per-kilogram comparison, so removing any price variations caused by weight differences. Where the weight is not available for items sold per piece (e.g. kebabs) the price of an individual piece is accepted. Similarly, some vegetables (e.g. cauliflower and lettuce) are also sold as a whole or half item and not by weight. To ensure that price comparisons for these items are on a constant quality basis, a per-kilogram price is estimated by the field officer. Several pieces of the vegetables are weighed to determine an average weight and the price is divided by the average weight to derive the per-kilogram price. 8.29 The CPI compares the price movements of the same product from the same outlet each period. New brands or changing consumer behaviour to purchase more generic brands are not treated as a price change. Any difference in price levels between different branded products or outlets (including online) is treated as quality change. 8.30 Assessing the quality change in restaurant meals and take away foods can be very difficult as there is no reliable indicator of changes in the quality of the meals. Prices of meals tend to remain the same between one pricing period and another, but side salads and vegetables may be adjusted to meet seasonal availability, or the weight of cuts of meat in the meals may be varied because of price changes in the meat industry. Field officers will note any changes of this nature where possible and will attach comments to the prices to highlight these situations so that quality adjustments can be made if considered necessary. 8.31 Another quality issue with meals out and take away foods is the treatment of so-called meal deals. Although these are frequently the most popular product sold, the items in the meal deal are priced separately because identifying the quality change for the meal deal as a whole can often be difficult. For example, the items within the meal deal can be varied or the meal deal can be cancelled entirely and these changes would present problems in calculating price movements based on the constant quality concept. Many of these meal deals are promotions used to launch products and so new meal deals are only included in the list of items to be priced when they have a proven sales record or when they are the only option available to customers. ALCOHOL AND TOBACCO 8.32 The Alcohol and tobacco group includes expenditure on all types of beverages containing alcohol such as beer, wine and spirits; and all products containing tobacco such as cigarettes, cigars and cigarette tobacco. The Alcohol and tobacco group accounted for just over 7% of expenditure in the 16th series CPI weighting pattern, introduced in the June quarter 2011. 8.33 Table 8.2 shows the structure of the Alcohol and tobacco group, examples of products priced and the data sources.
Specific issues Price collection 8.34 Nearly all alcoholic beverages are priced monthly, whether they are consumed on the premises of the retailer or consumed elsewhere. The exception is alcoholic beverages purchased in restaurants because these prices tend to be more stable. Tobacco products are also priced monthly. Field officers collect the prices of most of the products in this group. Areas requiring special pricing procedures Alcoholic beverages 8.35 Alcoholic products are often sold on special where large discounts are offered on a few products for a short time only. Prices of alcoholic beverages are also affected by seasonal celebrations; for example, during the Christmas holiday period and the running of the Melbourne Cup. To ensure that price fluctuations caused by special prices and seasonal celebrations are captured in the CPI, all alcoholic beverages, except those sold in restaurants, are priced monthly. 8.36 Alcoholic products priced are selected according to geographical market share and purchasing patterns of the consumers. For example, Australian consumers' preference for particular brands of beer vary from city to city, and even within each city. Brands are selected according to analysis of their local market shares and prices collected using a respondent standard approach. Field officers seek advice from the local retailers to determine which particular brands are most representative of the purchasing decisions of the consumers in that local area. Tobacco 8.37 The brands of cigarettes, cigars and cigarette tobacco selected for pricing are based on their shares of the retail tobacco market. Excise duty on alcohol and tobacco 8.38 In accordance with the indexation provisions of the Excise Tariff Act 1921 and the Customs Tariff Act 1987, the rates of customs and excise duties on spirits, beer and tobacco products are applied twice yearly and are based on upward movements of the CPI. The new rates take effect from 1 February and 1 August each year. Any price change caused by the change in the rate of customs or excise duty is collected as part of the general price movement of alcoholic and tobacco products. Quality adjustment Alcoholic beverages 8.39 Prices of alcoholic beverages are adjusted where necessary to ensure that price comparisons are on a constant quality basis. Producers of alcoholic beverages will sometimes make no changes to the prices of their products, but will make specification changes that will affect the quality of these products. Examples of these changes include changing the alcoholic content of a product or modifying the packaging to change the volume. Adjustments will be made to take into account these specification changes to ensure that the concept of pricing to constant quality is maintained. However, no quality adjustment is made to wine for changes in its alcoholic content as this depends on the fermentation process and the climate during the growing season. Tobacco 8.40 Prices of cigarettes are quality adjusted where necessary and quality is measured by the quantity of tobacco or the number of sticks in each packet. If a significant change in the tobacco content of a particular specification is identified, the price will be adjusted to remove the effect of the quality change. CLOTHING AND FOOTWEAR 8.41 Conceptually, the Clothing and footwear group includes expenditure on clothing, footwear, accessories such as watches and jewellery and services such as dry cleaning and shoe repair services. The Clothing and footwear group accounted for just under 4% of expenditure in the 16th series CPI weighting pattern, introduced in the June quarter 2011. 8.42 Table 8.3 shows the structure of the Clothing and footwear group, examples of products priced and the data sources.
Specific issues Price collection Garments 8.43 The prices of some items of clothing - for example, Garments for women are collected monthly because they change frequently. All other items of clothing are priced quarterly. Prices observed during clearance sales are ignored unless the product concerned is available in sufficient quantities for all prospective customers on the day. 8.44 In particular, much of women’s seasonal clothing depends on fashion, which changes significantly from season to season. The individual specifications have been defined to enable price collectors to identify the correct type of garment each period and any quality variations of the new season's stock are assessed as part of the monthly price analysis. The price statisticians endeavour to quantify any changes to the utility of the garment and adjust as necessary. New seasonal garments from the same outlet that match the product specification (e.g. women's T-shirt, generic brand, 100% cotton), but contain fashion changes are treated as directly comparable to the previous product as the overall utility of the garment is unchanged. Footwear 8.45 The range of footwear priced includes business shoes, casual and fashion footwear, school shoes and sports shoes. Prices are collected quarterly from specialist footwear retailers and from large department stores and sports stores with footwear sections. Accessories and clothing services 8.46 Accessories comprise personal effects such as jewellery, watches, wallets, suitcases and backpacks. Examples of items classified under clothing services are dry cleaning and shoe repairs. Prices of items in this sub-group are collected quarterly by field officers at retail outlets such as jewellers, department stores and clothing repairers. 'Special' prices 8.47 Sale or special prices for items of clothing are acceptable for the CPI provided:
8.48 Specials on clothing and footwear may be offered because the item is being discontinued. In these cases, where there is only a limited range of the product available at the sale price, the drop in price is ignored, as it would not be representative of genuine price changes. Specials are closely monitored, especially to check whether the prices are widely available across the range of the product or limited to certain items only. Seasonal items 8.49 A significant proportion of clothing items (when weighted by expenditure) is seasonal. As a result, each quarter there are many prices that need to be imputed for out-of-season items. Prices for these out-of-season items are moved in line with changes observed in prices of similar items that are available. Sample selection and maintenance 8.50 Clothing respondents are largely selected and weighted using a top-down approach. The initial phase of this process is to identify and weight market niches for the different ranges of clothing. Outlets such as retail chains and store franchises are then chosen to represent those niches based on their market shares. This approach allows the ABS to maintain a stable structure of retail clothing stores. However, the clothing specifications are under continual review as many of these products have short life cycles. Quality adjustment 8.51 Quality adjustment is very difficult as there are changes in fashion, fabrics, makes and brands. The principal difficulty faced by the ABS is the high frequency of stock turnover for fashion garments and the potential difficulty assessing each instance of possible quality change. Moreover, because changes in garments are so frequent, retailers are likely to time price changes (particularly price increases) to coincide with the introduction of a new range. This retailing practice is problematic from a CPI perspective because specification changes often appear significant enough to require detailed assessment to measure price change on a constant quality basis. However, genuine quality changes (i.e. not those that are purely cosmetic) are typically marginal and typically much less than the price changes that occur at the same time (usually because of discounting of garments that are about to be superseded). So although prices for garments have a tendency to move around abruptly and unevenly, the genuine quality changes that often punctuate these price changes tend to be insignificant. If a new item matches the same specification (e.g. women's fashion top, same brand and from the same outlet) then no quality adjustment is applied. If there is a major change in the quality of clothing priced in the CPI observed by field officers, quality adjustments are required. HOUSING 8.52 Conceptually, the Housing group includes all expenditure on rents, utilities, purchase and maintenance of dwellings and other expenditure on shelter-related goods and services. The Housing group accounted for just over 22% of the CPI expenditure in the 16th series CPI weighting pattern, introduced in the June quarter 2011. 8.53 Table 8.4 shows the structure of the Housing group, examples of products priced and the data sources.
Specific issues Price collection Rents 8.54 This sub-group covers payments made by households as rent for both privately owned and government-owned dwellings. Rental payments for holiday homes are excluded as these are classified under Domestic holiday travel and accommodation in the Recreation and culture group. Prices for a sample of rented dwellings within each capital city are collected every quarter, with the sample stratified according to location, dwelling type and size of dwelling based on the most recent Census of Population and Housing. 8.55 Rental payments for privately owned dwellings in the metropolitan areas of each capital city are obtained from real estate agents under a matched sample approach, i.e. prices are collected for the same sample of private rental dwellings every quarter. 8.56 Government rents charged to pensioners and other welfare recipients are set as a proportion of income. As these incomes are known, rents for government-owned properties are derived from information provided by the state and territory housing authorities. Consequently, price movements can be readily estimated. Occasionally, the proportion used to set rents is changed. Again this is public knowledge and so is readily available for use in estimating price movements. Utilities 8.57 Electricity, gas, water and sewerage charges are obtained quarterly from the energy authorities and local councils, and both concessional and standard rates are priced. Current charges are applied to estimates of annual consumption of electricity, gas and water to derive the annual payment in the current quarter's prices. Connection fees, delivery and similar charges are included as part of the price of the utility service. Governments and councils occasionally impose levies on customers of these services as a means of raising money for some possibly unrelated services such as ambulance services. As these levies are considered an inescapable cost of obtaining the original service they are counted as a part of the cost of the original service. 8.58 Prices for other household fuels (such as firewood and bottled gas) are collected quarterly from retail outlets selling these products. New dwelling purchase by owner-occupiers 8.59 Pricing of house purchases is limited to transactions in newly constructed owner-occupied houses. Project home builders are approached to obtain prices for a few specified types and models of project homes. The types of project homes selected are those most commonly constructed in each capital city. For marketing purposes, many builders provide bonus deals which can include upgrades to fittings, extra features, or even extra rooms. These bonuses change frequently and, because of this, new homes are priced monthly. 8.60 Extensions and renovations are conceptually part of this expenditure class, but no prices specifically relating to these activities are collected as their prices are assumed to move similarly to those of new houses. However, expenditure on extensions and renovations is included in the weight for this expenditure class. Other housing 8.61 Property rates and charges are normally set using a rating year and so are only priced annually. Examples of items priced are general rates, land taxes and garbage and other collection fees. Where concessional and standard rates exist, both rates are priced. 8.62 Prices for house repairs and maintenance work performed by tradespeople are not collected as prices for complete tasks. Rather, price movements for materials are obtained by pricing various materials used in house repair and maintenance, and the labour component is estimated using data from Labour Price Index, Australia (cat. no. 6345.0). Subsidies 8.63 Some classes of home buyers (e.g. first home buyers) may be eligible for government subsidies directly related to the house purchase. Adjustments are made to the prices collected to reflect the differing transactional prices paid by different types of home buyers. 8.64 Subsidies received by households on rents and utilities are included in the CPI. Therefore any increase or decrease in subsidies or concession rates will be shown as a price change. 8.65 Social security recipients who rent privately owned dwellings can claim Commonwealth Rental Assistance (CRA). The average payment of recipients is based on the average movements of privately owned rents and applied across the capitals. The amount of assistance they receive is determined according to each family’s circumstances and the amount of rent they pay above a threshold. As CRA is a subsidy directly related to the rents of privately owned dwellings, it is in scope of the CPI. In accordance with the indexation provisions of the Social Security Act 1991, rental thresholds and maximum assistance rates are updated in March and September each year in line with movements in the CPI. Price movements in rents paid by households receiving CRA will reflect the timing of these updates. During other periods of the year, the price movements for those households receiving CRA will broadly align with price changes for private rents. As an example, if Centrelink were to increase benefits by 2% then the rents paid should rise by approximately 2%. Table 8.5 shows example of a rent increase for aged pensioners following a rise in the fortnightly aged pension.
Quality 8.66 Conceptually, when a change in the quality of a rented dwelling occurs (e.g. a capital improvement - such as a new garage - is made to the dwelling) a price adjustment will be required to account for the quality change. Information to assist in making adjustments for these quality changes is obtained from the real estate agents who supply the price. Collecting information on quality changes for government-owned rented dwellings has not been feasible because the improvement in quality is usually not directly reflected in the rental charges. In practice, the effect of the quality change is deemed to be minor and no quality adjustments are applied to government-owned rented dwellings. 8.67 Significant maintenance tasks on rented dwellings (for instance, the laying of new carpet) are normally carried out infrequently. Hence the rental increases to recover these costs occur irregularly rather than continuously. Since the work was carried out to return the dwelling to its original standard and, given that no quality adjustments are made to take account of the deterioration of the dwelling, some large increases in rents are accepted without any quality adjustment. 8.68 Quality adjustment of house purchases involves accurately representing the utility to consumers of bonuses offers. For example, a project home that has $10,000 worth of upgrades offered for free versus $10,000 worth of upgrades offered for an extra $3,000 will immediately have a different take up rate by consumers. We would expect 100% of acceptance from the first offer and less for the second. Also, we must consider what is being offered as a bonus. If the bonus item is an upgrade of a necessary inclusion for a new home then we must determine if the bonus is of genuine utility to the customer. Where an item is identified as a genuine bonus, the advertised value of the item is reduced to the market value and removed from the project home value. 8.69 Utilities prices are calculated based on the change in total cost for a fixed amount of consumption in each period. No qualgenerallyerally applied, but any change in average household consumption are excluded from price change. FURNISHINGS, HOUSEHOLD EQUIPMENT AND SERVICES 8.70 Conceptually, the Furnishings, household equipment and services group covers expenditure on all goods and services used in the operation and regular use of dwellings; plus personal goods and services, including those delivered outside the home. The Furnishings, household equipment and services group accounted for just over 9% of the expenditure in the 16th series CPI weighting pattern, introduced in the June quarter 2011. 8.71 Table 8.6 shows the structure of the Furnishings, household equipment and services group, examples of products priced and the data sources.
Specific issues Price collection 8.72 All products covered by this group are priced quarterly. Large products (such as lounge suites, beds and refrigerators) are normally offered with an extra charge for home delivery. For CPI purposes, these delivery fees are included in the price of the article as for most consumers they are an inescapable cost of purchasing these items. 8.73 Household services are often charged by the hour. This is not an appropriate pricing measure for CPI purposes, as it makes no allowance for improvements in the efficiency of service provision. Respondents are requested to provide prices for completed jobs to overcome this problem. The chosen task is re-priced for the same type of client every quarter. Prices for both casual and permanent clients are obtained. 8.74 Prices obtained for child care services cover full-time and part-time care. Respondents are selected from each of the community based, private company, and family based day care sectors of the industry. Subsidies 8.75 Parents with children in approved child care centres are eligible to claim a Child Care Benefit (CCB) based on income as well as the Child Care Rebate (CCR). This is modelled by the ABS, and the model is adjusted annually to reflect changes in benefit rates and tax rebates, 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 affects their benefit immediately regardless of when the Family Assistance Office (FAO) is notified.(footnote 1) 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 effect of rises in aggregate incomes. The CCB and CCR are subsidies directly related to child care services and so the price of child care in the CPI is equal to the gross fee payable by the parents, less the amount of CCB and CCR that they receive. Quality adjustment 8.76 Furniture presents a problem in pricing to constant quality as, for example, the quality of construction may change, but may not be noticeable from a casual inspection. Fashion also plays a large part in new models without modifying the practical utility of the product to the consumer. Without a change in utility, changes in fashion do not result in prices being adjusted for quality changes. 8.77 Products such as cleaning agents often have their formulas changed and as a result their prices change. If the change to formulas is driven by legislation (e.g. changes to poisons laws to improve child safety) then no adjustment to prices for quality is made. Similarly, if the change to the product is for the benefit of the community (e.g. introduction of biodegradable cleaning agents) then no adjustment for quality is made. Quality adjustment is only made where there is a demonstrated change in the efficiency of the product to perform the service for which it is purchased. 8.78 Services, including those provided to households, are hard to price to a constant quality. To meet CPI requirements, respondents are asked to select a property and to provide a costing for the provision of a completed job for a popular service to that property. This overcomes problems with simple measures such as hourly rates (where, for example, more experienced people can perform a given task more quickly). 8.79 Hairdressing and personal grooming services are difficult to adjust for changes in quality. For example, trying to assess the change in the quality of a haircut is subjective. As a result, quality adjustments are rarely applied to personal care services. 8.80 Changes in the quality of child care are also difficult to assess because of the subjective nature of measuring effects such as changes in experienced staff. Therefore, no quality adjustments are made for these changes. HEALTH 8.81 The Health group includes all expenditure relating to health products and services. The Health group accounted for just over 5% of the CPI 16th series weighting pattern, introduced in the June quarter 2011. 8.82 Table 8.7 shows the structure of the Health group, examples of products priced and the data sources.
Specific issues Price practices 8.83 With the exception of health insurance, items covered by this group are priced quarterly. Health insurance prices are collected annually. Gross prices are recorded for services not subsidised; e.g. physiotherapy, chiropractic and hospital services. The prices collected for subsidised services such as hospital and medical services, optical services and purchases of medicines under the Pharmaceutical Benefits Scheme (PBS) are recorded as net prices (i.e. gross prices less any subsidies) - see Areas requiring special pricing procedures for more information. Dental services are priced as advertised by the dental practice. Pharmaceutical products not specified under the PBS are priced using their actual (gross) prices as displayed in the store. Purchase of corrective eyewear including contact lenses and spectacles are recorded at full retail prices. 8.84 Health insurance is included in the Health group because it relates to health services and medical service costs can be readily substituted with health insurance costs. Conceptually, the cost of the insurance service charge should be recorded with other non-life insurances within the Insurance and financial services group. However, this is not practicable due to difficulties in estimating the insurance service charge component of the observed price (i.e. gross insurance premium less any claims). Refer to paragraph 8.137 on the Insurance and financial services group. Areas requiring special pricing procedures 8.85 Under the PBS, consumers pay a standard, subsidised price for medicines until they reach a specified level of expenditure (the safety net threshold) during a calendar year. Once this limit is reached, all further purchases of medicines are at a greatly reduced price. Some groups of consumers eligible for concessional prices (e.g. age pensioners) are required to satisfy much smaller safety net provisions and are entitled to pay a concessional price until the safety net is exceeded, at which point PBS medicines are free. Therefore, concessional prices are part of the price sample and are used in index estimation. Price information for prescribed medicines covered by the PBS is obtained from the Department of Health and Ageing (DoHA). The prices are weighted according to the progressive number of drug prescriptions sold at the reduced prices during the four quarters of the year. As a greater proportion of the population exceeds the PBS safety net through the year, the ratio of reduced prices to standard prices increases, leading to a distinct seasonal pattern in price movements for PBS drugs. Data to estimate the proportion of the population exceeding the safety net is obtained from the Drug Utilisation Sub Committee (DUSC) survey produced by DoHA. 8.86 Medical services subject to subsidies under the Medicare Benefits Schedule (MBS) are measured using administrative data. The sample of services measured in the CPI includes those deemed as representative of the reference population. Data is obtained quarterly and includes pricing data for services provided, bulk billing and rebate information for each service. Medicare rebates are reviewed annually with the new rebates introduced on 1 November of each year. Net prices are calculated by the ABS accounting for all subsidies and safety net rebates. Subsidies 8.87 Some health services are subsidised under the Medicare rebate scheme and these subsidies are factored in during the pricing of health care services for the CPI. Data relating to the amount of subsidies for health services are obtained quarterly to enable the subsidised prices to be calculated. The medical expenses tax offset, which is available to taxpayers whose medical expenses exceed a prescribed level in an income year, is out of scope of the CPI, and so does not affect the prices recorded for CPI purposes. Adjusting for quality 8.88 The quality of many health care products and services is constantly improving, and these improvements should be taken into account during pricing to maintain the concept of pricing to constant quality. Where possible, the price collected is for a health service rather than an hourly rate to account for some quality change. Unfortunately, identifying and quantifying quality change in health care services is often quite difficult in practice; and so the prices collected for health care services are normally not adjusted for changes in quality unless the change is significant, and there are reasonable means of quantifying the quality change. TRANSPORT 8.89 The Transport group includes all expenses related to owning and operating private motor vehicles and travel by public transport within the capital cities. It does not cover public transport used for inter city travel: this is covered in the Recreation and culture group. The Transport group accounted for over 11% in the 16th series CPI weighting pattern, introduced in the June quarter 2011. 8.90 Table 8.8 shows the structure of the Transport group, examples of products priced and the data sources.
Specific issues Price collection 8.91 Prices for all goods and services in the Transport group are collected quarterly, except for motor vehicles and automotive fuel. 8.92 Prices of new cars are collected monthly. Cars included in the price sample cover a broad selection of two and four wheel drive models across the spectrum of prices. All taxes and levies on the purchase of a car, other than vehicle registration and compulsory third party insurance, are added to the price of the motor vehicle as they are inescapable costs of purchasing the vehicle. Registration is included in the Other motoring charges expenditure class and comprehensive and compulsory third party insurance are included in Insurance services in the Insurance and financial services group. 8.93 Automotive fuel prices are obtained as a sample of electronic funds transfer transactions conducted in each capital city. Prices from outlets across all areas of each capital city are obtained each day, including weekends and public holidays. Prices are recorded for a range of automotive fuel types. Areas requiring special pricing procedures 8.94 Motor vehicles are very seldom sold at the recommended retail (or list) price. There is often a bonus of some kind offered (e.g. free air conditioning, a drive away price, or a heavily discounted accessories package) as part of the deal, or just simple haggling over the price. Since actual transactional prices are required for the CPI, field officers determine an estimate of the average value of these deals from discussions with car dealers. 8.95 To price public transport, fares for a sample of representative journeys are collected, in preference to prices of various ticket types or zones. A mix of ticket types (e.g. single, periodical, concessional and multi trip tickets) is then used to price these journeys. Quality adjustment 8.96 Whenever any specification change is made to a vehicle that affects its motoring performance, economy, comfort, safety, or durability, an adjustment should be made to the car’s reported price. In practice, these quality adjustments are made at the time that new models are released. 8.97 Quality adjustments for motor vehicles are based on consumer utility and measures are derived from a variety of sources, including:
8.98 Consistency of adjustment practices is maintained across vehicles and over time, but allowance is made for changing community perceptions of utility. 8.99 To determine the value of bonus offers and quality adjustments, the ABS uses a variation of the Delphi method. This method accommodates the broad range of utility values that occur within the household consumer population. Once a dollar value is determined, the amount is applied to the price of the new vehicle. For bonus offers, the price in the current period is adjusted downward while the bonus is offered. For quality adjustments, the price of the previous model is adjusted upwards. In both cases, the difference between the two quarterly prices is reduced as a result of the adjustments. 8.100 No adjustments are made to prices for public transport for changes in the quality of the service, such as improved or degraded timetables, better seating, or the addition of air conditioning to public buses. COMMUNICATION 8.101 The Communication group covers all expenditure on postal and telecommunication services. The Communication group accounted for 3 per cent in the 16th series CPI weighting pattern, introduced in the June quarter 2011. 8.102 Table 8.9 shows the structure of the Communication group, examples of products priced and the data sources.
Specific issues Price collection 8.103 Prices for postal services are collected monthly. They cover a range of postal charges including those for standard letters, parcels in the most common sizes, and international mail. The prices are collected centrally as the charges apply nationally. 8.104 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 8.105 Presently it is difficult for the ABS to price bundled packages to constant quality because charging rates are linked to frequency of use or duration of the telephone calls and the rate of discount is variable. Broader bundling, where single suppliers provide packages which combine different types of services (e.g. telephone services, subscription television services and broadband internet services) is also a cause for concern. It is 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 is monitoring these developments and is investigating a new way of dealing with them using a confidentialised sample of consumers' telephone and utility bills. Adjusting for quality 8.106 One of the most difficult issues relating to the pricing of telecommunication services is attempting to price them to constant quality. It is recognised that current best practice approaches have difficulty in accounting for substitutions across providers and in adequately accounting for changes in the quality of the services provided. For example, some providers use the voice over IP technology, but others do not. At present the ABS is not quality adjusting for these differences but attempts to maintain substitutability within categories. RECREATION AND CULTURE 8.107 All expenditure on recreational products, sporting and recreational activities and holiday travel and accommodation is in the Recreation and culture group. The Recreation and culture group accounted for over 12% of the 16th series CPI weighting pattern, introduced in the June quarter 2011. 8.108 Table 8.10 shows the structure of the Recreation and culture group, examples of products priced and the data sources.
Specific issues Price collection 8.109 Most products in this group are priced quarterly. The exceptions are holiday travel and accommodation, computing equipment and software and newspapers and magazines, all of which are priced monthly. Prices for newspapers and magazines, computing equipment and software, vehicle hire, overseas tours and domestic air fares are collected centrally. Prices for all other products are collected locally. Field officers collect prices for domestic holiday accommodation from providers in their own state even though many of these prices are used to calculate indexes for the other capital cities. Areas requiring special pricing procedures Audio, visual and computing equipment and services 8.110 The ABS does not directly price computing equipment purchased by the CPI population group because of the complexity of pricing these products. Instead, the price movement is estimated using a matched model of computers each month. Newspapers, books and stationery 8.111 Book prices for the CPI are based on the actual purchase prices paid by consumers and not the recommended retail prices stated on the books. Books sold through book clubs and mail order firms are often discounted, but the discounts are normally based on the total value of book purchases. If the discounts do not relate specifically to a particular book, they are not recorded for the CPI. Other recreation, sport and culture 8.112 Toys and games are influenced by fashion, making it difficult to price a particular toy over a long period. To deal with this problem the ABS tries to price classic toys and games. Regular discussions are held with retailers to ensure that the most appropriate items are priced. Holiday travel and accommodation 8.113 Prices for domestic holiday travel and overseas holiday travel are influenced by different factors. For example, changes in foreign currency exchange rates are likely to affect overseas travel prices quite significantly, but will have only a small effect on domestic travel prices. In contrast, Australian school holidays have a major effect on the cost of holiday accommodation within Australia, but have no direct effect on the price of overseas holiday accommodation. 8.114 Most holiday travel, particularly airfares, is booked in advance. Prices for airfares also tend to vary depending on how far ahead they are booked, the day of the week, and the time of day that the trip is taken. As the Australian CPI is compiled on an acquisitions basis, airfares are collected in advance (at the time of payment), but are only used in the CPI in the quarter in which the trip is undertaken. For example, Overseas airfares and tours are collected two months in advance (January for travel in March) and domestic airfares are collected one month in advance (January for February). Airfares are normally offered with extra fees, charges and taxes added to the base fare e.g. baggage charges and insurance levies. For CPI purposes, these additional fees, charges, levies and taxes are included in the price of the airfare as they are an inescapable cost of purchasing the airline travel. Foreign country index numbers are adjusted by the exchange rates to reflect the exchange rate impact on accommodation expenses to Australian holiday travellers. Quality adjustment Audio, visual and computing equipment and services 8.115 Audio and visual products change styles and models frequently. These changes quite often improve the quality of the products. Where the product currently priced for the CPI is changed, an adjustment is made to ensure that the concept of pricing to constant quality is maintained. Some common reasons for a quality adjustments are introduction of a new model or the addition of a bonus feature. Bonus offers are generally disregarded, while cash back offers are included in the price if the take up rate in considered significant. The analyst must decide whether or not the changes can be quantified or valued reasonably prior to applying the quality adjustments. 8.116 Computers are also likely to continue experiencing significant technological and quality improvements, and conceptually these changes will need to be reflected in the CPI prices. The ABS's matched model computer price index measures the price change of the same computer from month to month. Any difference in price observed between one model computer and another is treated as a quality change as computing power and features improve over time. Newspapers, books and stationery 8.117 Collecting book prices on a constant quality basis over an extended period of time can be a problem. The ABS uses books on the top ten best seller lists as a guide for selecting books for pricing each quarter. This is done to best represent consumer purchasing patterns, taking into account best selling books under the fiction, non-fiction and children's categories. When a book falls out of the top ten list ABS staff must replace the specification with a new book appearing on the top ten list. This allows prompt alignment with consumer behaviour. Other recreation, sport and culture 8.118 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 from person to person. However, the variation in utility is thought to be small and so no quality adjustments are made. Items that have a time component (e.g. club memberships) will be adjusted if the time component of the service being bought changes significantly. Holiday travel and accommodation 8.119 Measuring quality change in holiday travel is also a subjective task. For example, it is difficult to gauge the quality change resulting from improved or degraded seating in planes, or better quality hotel rooms being included in holiday and airfare tour 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 8.120 Certain types of books and some types of sports or recreational activities are affected by seasonal factors and are available for certain periods of the year only. For example, many university textbooks are only available at the beginning of the academic year. In this case, the prices of university textbooks in other pricing periods are imputed based on the prices of similar items that are available. With annual subscriptions, prices are carried forward until the same quarter in the following year when the subscription is priced again. EDUCATION 8.121 The Education group includes all expenditure on primary, secondary and tertiary education and preschool services. The Education group accounted for just over 3% of the 16th series CPI weighting pattern, introduced in the June quarter 2011. 8.122 Table 8.11 shows the structure of the Education group, examples of products priced and the data sources.
Specific issues Price collection 8.123 Prices for preschool education are collected from traditional preschools and from child care centres that provide preschool education. Unlike fees charged by the traditional preschools, fees paid for preschool care offered through child care centres are eligible for the child care rebate. Eligibility for the rebate is determined by family income and prices are adjusted to a subsidised basis using a model to estimate the effect of the subsidy on prices paid. 8.124 Fees for primary and secondary education are collected from both governments and private schools. Prices are collected at the start of the school year as fees are only reviewed annually. The fees are divided into tuition fees and other fees. Other fees are charges which are associated with attending the school, but which are not for tuition although they must be paid. Examples of these fees are book fees, payments for school excursions, contributions to school building funds, camp fees and fees for swimming lessons. 8.125 Tertiary education fees are collected from universities and colleges of Technical and Further Education (TAFE). Fees are divided into course fees and administrative fees. Common items included in administrative fees are institutional enrolment fees, book and library fees and fees for activities supported by student associations. Subsidies 8.126 Child care benefits are payments made by the Australian Government to assist working parents to 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 where applicable is deducted from the gross fee. The September quarter issue of the CPI includes an appendix which describes the subsidies included in the child care price index. Quality adjustment 8.127 Applying quality adjustment to educational services can be subjective as the factors determining the quality of the services are difficult to measure. Factors affecting the quality of education include the standard of teaching and the quality of the equipment provided to students. These factors can have an effect on the quality of the service, but no quality adjustments are made for these because it is hard to measure them accurately. 8.128 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 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 is related entirely to a change in the quality of education or is 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. INSURANCE AND FINANCIAL SERVICES 8.129 Services priced in this group include expenditure on general insurance and financial services. The Insurance and financial services group accounted for 5% of the 16th series CPI weighting pattern, introduced in the June quarter 2011. 8.130 Table 8.12 shows the structure of the Insurance and financial services group, examples of items priced and the data sources.
Specific issues Price collection 8.131 Included under insurance services are motor vehicle insurance and household's house and contents insurance, but not health insurance which is classified under the Health group. To monitor price movements in insurance services, representative ranges of different risk categories are priced for insurance cover and are collected quarterly. The risks vary because of the different demographic characteristics of the insured consumers or because of where they live. For example, young men driving highly powered cars are considered a higher risk for motor vehicle insurance than middle aged people driving family sedans. For contents insurance, inner city locations are generally considered riskier than suburban locations. Taxes and duties on insurance services (e.g. stamp duties) are collected as part of the premium because they are an inescapable cost of purchasing the insurance service. 8.132 Financial services are priced monthly. For the Deposit and loan facilities (direct charges) measure, each month the specific fees, terms and conditions for a representative sample of consumer banking products (e.g. home loans, savings accounts etc.) are obtained from sampled financial institutions. Data used in the pricing of other financial services are collected from real estate agents and State and Territory revenue offices. For the analytical series 'All groups CPI including Deposit and loan facilities (indirect charges)', sampled financial institutions provide comprehensive data on average balances and interest flows each month at a detailed product level. Areas requiring special pricing procedures Deposit and loan facilities (direct charges) 8.133 Deposit and loan facilities (direct charges) contain a range of financial transactions used by households including account keeping fees, charges for using Automatic Teller Machines (ATMs), credit card fees, loan approval fees and overdraft charges. Each month the price, terms and conditions for a representative range of banking products (e.g. home loans, savings accounts etc.) are obtained. In the case of percentage fees, such as foreign currency conversion fees, these are applied to a sample of real average transaction dollar amounts. This sample of transactions, moved forward by the four-quarter moving average of the CPI, is updated on an annual basis. For each selected institution, the individual fees are combined using a Ratio of Average Prices (RAP) within a product type, before being aggregated up to the published level. 8.134 Real estate agents provide information on a sample of residential property sales (representative of the sale prices in each agent's area) for each of the three months in a calendar quarter. A regression technique is then used to estimate a relationship between property values, property location and commission rates. Each quarter, these property values are indexed by a four-quarterly moving average of the CPI. The sample of properties is updated on a regular basis. Taxes on transfers are calculated by applying duty rates for each state and territory to a sample of property sale transactions for the respective state and territory. Legal fees and Stockbroking fees are currently not priced directly but are indexed by the movement in Real estate agents fees. Deposit and loan facilities (indirect charges) 8.135 For the analytical series ‘All groups CPI including Deposit and loan facilities (indirect charges)’, financial institutions in the CPI sample provide monthly data about average balances and interest flows at the detailed product level. The data is used to calculate a current period interest rate, institution specific reference rates and margin rates for each of the products. The margin rates are then applied to the account balances to compute the current period amounts that would be paid as interest margins. The underlying sample of transactions, product balances and house price values are indexed by a four-quarter moving average of the CPI, to keep the underlying level and quantity of service fixed. The price index is constructed by comparing the change over time in these aggregated margin amounts. 8.136 Further information on financial services in the CPI - including detailed information on the calculation of expenditure weights and price change, as well as ongoing developments - is contained in Appendix 3. Insurance 8.137 Because of the practical difficulties in estimating the insurance service charge as premiums net of claims, the gross insurance premium is used to measure the price movement. The assumption underlying this practice is that the cost of the insurance service is proportional to the premium. However, occasionally factors that influence the gross premium, but not the insurance service charge, may change. For example, a natural disaster may raise significantly the proportion of consumers making claims. However, the individual cost of servicing these claims may not be affected. Following the event, companies may raise gross premiums, over an extended period, to recover the unexpected claim payments. Quality adjustment 8.138 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 quarterly to maintain a real level of value. The ABS regularly discusses these valuations with insurance companies to ensure that representative insured valuations are used for pricing. 1 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.
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