Forthcoming correction to child care costs in the Consumer Price Index

The ABS has recently identified it made errors in estimating the impact of the Government’s reforms to increase the rate of the Child Care Subsidy (CCS) and its eligibility parameters when they took effect in July 2023. [1]

As a result, consumers’ out-of-pocket child care costs were overstated in the Consumer Price Index (CPI) from the September quarter 2023 onwards (see table and chart below). In the most recent CPI publication for the September quarter 2024, the published Child care index was 5.8 per cent (or 9.5 index points) higher than it should have been. 

The ABS intends to make a one-off correction to the measure of out-of-pocket child care costs in the October 2024 Monthly CPI indicator (to be published on 27 November 2024) and the December quarter 2024 CPI (to be published on 29 January 2025). The correction will apply a 5.8 per cent (or 9.5 index point) reduction to the Child care index and a 0.4 per cent reduction to the Primary and Pre-school Education index (which includes Long Day Care costs).

Making this correction to child care costs and providing the information below on what the Child care index should have been in each of the last five quarters is important. It will allow policy makers and the public to be correctly informed about child care pricing and policy dynamics. 

Child care makes up 0.9 per cent of the CPI basket of goods and services. As a result, the errors to child care costs had a small impact on the headline CPI. The level of the headline CPI was 0.04 per cent higher in September quarter 2023 than it should have been, and 0.05 per cent higher from the March quarter 2024 onward. Quarterly inflation is calculated as the movement in the level of the CPI from one quarter to the next and rounded to one decimal place. The total cumulative effect of the errors on the published quarterly inflation rate over the last five quarters was 0.0 per cent.

While some published economic statistics are revised in later periods as data is improved, the CPI is unique in the high threshold that needs to be met for the original publication to be revised. The ABS has never revised the headline CPI and, as stated on the ABS’ website, would only do so in “exceptional circumstances, such as to correct a significant error”. This is because the CPI is widely used for indexation purposes and revisions could create uncertainty and confusion. 

It is the ABS’ professional judgement that an error of 0.05 per cent in the level of the headline CPI and a cumulative effect on the published quarterly inflation rate over the last five quarters of 0.0 per cent does not warrant revising the originally published CPI estimates, given that the published CPI is rounded to one decimal place. Correcting the error to child care costs in the next release will return the headline CPI to the correct index level from now on. 

Underlying inflation, as measured by the Trimmed Mean and Weighted Median, were unaffected by the errors. The Services, Non-tradables, Non-discretionary indexes, and some of the Selected Living Cost Indexes (SLCIs) were also impacted by these errors and therefore will be affected when the correction to the child care costs is made. 

The table below shows the differences between the information that was published for the Child care index and the graph that was published in the September quarter 2024 publication and what should have been published.

The reliability of and confidence in key economic statistics is something the ABS takes extremely seriously. The ABS will learn from this experience and prioritise efforts already underway to strengthen its quality assurance processes.

[1] Child Care Subsidy changes commencing July 2023 – Parliament of Australia

Note: This chart was originally published in the September quarter 2024 CPI publication. The chart shows the Child care index that was published and what should have been published.