Consumer Price Index, Australia methodology

The Consumer Price Index (CPI) measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households). This 'basket' covers a wide range of goods and services, arranged in the following eleven groups:

• Food and non-alcoholic beverages
• Alcohol and tobacco
• Clothing and footwear
• Housing
• Furnishings, household equipment and services
• Health
• Transport
• Communication
• Recreation and culture
• Education
• Insurance and financial services.

Capital city indexes used by the CPI are based on the 2011 Australian Statistical Geography Standard (ASGS) Greater Capital City Statistical Areas. The capital city indexes measure price movements over time in each city individually. They do not measure differences in retail price levels between cities.

Further information about the CPI is contained in Consumer Price Index: Concepts, Sources and Methods (cat. no. 6461.0).

The frequency of price collection by item varies as necessary to obtain reliable price measures. Prices of some items are volatile (i.e. their prices may vary many times each quarter) and for these items frequent price observations are necessary to obtain a reliable measure of the average price for the quarter. Each month prices are collected at regular intervals for goods such as alcohol, men's and women's clothing, project homes, motor vehicles, petrol and holiday travel and accommodation. There are a few items where prices are changed at infrequent intervals, for example education fees where prices are set once a year. In these cases, the frequency of price collection is modified accordingly. 

In order to facilitate a more even spread of field collection workload, the number of items for which prices are collected quarterly is distributed roughly equally across each month of each quarter. In all cases, however, individual items are priced in the same month of each quarter. For example, items for which prices are collected in the first month of the September quarter, July, are also priced in the first month of subsequent quarters, namely October, January and April.

The Australian Bureau of Statistics (ABS) uses a variety of sources to collect CPI prices, such as visiting businesses, online collection, telephone surveys, and administrative data. To efficiently collect prices online, the ABS uses automated website data collection, referred to as 'web scraping'. Further information is discussed in Web Scraping in the CPI. In the case of transactions data, revenue and quantity data are collected on a weekly basis. For most other items, price volatility is not a problem and prices are collected once a quarter. 

There are 87 expenditure classes (that is, groupings of like items) in the 17th series CPI and each expenditure class has its own weight, or measure of relative importance. In calculating the index, price changes for the various expenditure classes are combined using these weights.

Changes in the weighting pattern have formerly been made at approximately six yearly intervals to take account of changes in household spending patterns. From the introduction of the 17th series CPI in December quarter 2017, the weights are now updated annually. The Household Expenditure Survey (HES) is used to re-weight the CPI in the years where it is available, currently six-yearly. In inter-HES years, Household Final Consumption Expenditure (HFCE) data from the National Accounts is used as the primary data source for updating the weights. The CPI now comprises seventeen series of price indexes which have been linked to form a continuous series. The current weighting patterns for the CPI for the weighted average of the eight capital cities and for each of the eight capital cities are published in Annual weight update of the CPI and Living Cost Indexes (cat. no. 6470.0.55.002). The historical weighting patterns for the CPI are published in Consumer Price Index: Historical Weighting Patterns, 1948 - 2017 (cat. no. 6431.0). Both publications are available on the ABS website http://www.abs.gov.au.

Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. The following example illustrates the method of calculating changes in index points and percentage changes between any two periods: 

All groups CPI: Weighted average of eight capital cities. Index numbers: 

June Quarter 2021 = 118.8
Less June Quarter 2020 = 114.4
Change in index points = 4.4
Percentage change = 4.4/114.4 x 100 = 3.8%

Percentage changes are calculated to illustrate three different kinds of movements in index numbers:

• movements between consecutive financial years (where the index numbers for financial years are simple averages of the quarterly index numbers)
• movements between corresponding quarters of consecutive years
• movements between consecutive quarters.

Table 7 provides a detailed analysis, for the weighted average of eight capital cities, of movements in the CPI since the previous quarter, including information on movements for groups, sub-groups and expenditure classes. It also shows the contribution which each makes to the total CPI. For instance, the dairy and related products sub-group contributed 1.11 index points to the total All groups index number of 113.5 for the September Quarter 2018. The final column shows contributions to the change in All Groups index points by each group, sub-group and expenditure class.

Various series are presented in Table 8 in this publication to assist users analyse the CPI. Some of the analytical series are compiled by taking subsets of the CPI basket, and most are self-explanatory, such as 'All groups CPI excluding food and non-alcoholic beverages'. (A complete list of CPI groups, sub-groups and expenditure classes is contained in Tables 6 and 7). Other series and their composition are described below:

• All groups CPI, seasonally adjusted: Comprises all components included in the All groups CPI, seasonally adjusted where seasonality has been identified at the weighted average of eight capital cities level. Seasonal adjustment factors are calculated using the history of price changes up to the current quarter CPI and are revised each quarter.
  • Where CPI expenditure classes are identified as having a seasonal pattern, quarterly price changes are estimated on a seasonally adjusted basis. At the introduction of the 17th series, 57 out of the 87 expenditure classes were classified as seasonal. A description of which series are currently seasonally adjusted is published in the Appendix of every December quarter issue of Consumer Price Index, Australia (cat. no. 6401.0), following the annual seasonal reanalysis.
• Underlying trend series, 'Trimmed mean' and 'Weighted median': These are two analytical measures of trend inflation calculated from the June quarter 2002 using standard ABS seasonal adjustment techniques. For more information see the Information Paper: Seasonal Adjustment of Consumer Price Indexes (cat. no. 6401.0.55.003). The trimmed mean and weighted median are calculated using the distribution of expenditure classes each quarter derived as follows:
  • The CPI expenditure classes are ranked from lowest to highest according to the seasonally adjusted percentage change from the previous quarter.
  • The seasonally adjusted relative weight of each expenditure class is calculated based on its previous quarter contribution to the All groups CPI.
  • The 'Trimmed mean' is calculated by using a weighted average of percentage change from the previous quarter (seasonally adjusted) from the middle 70 per cent of the distribution.
  • The 'Weighted median' is calculated using the percentage change from the previous quarter (seasonally adjusted) expenditure class at the 50th percentile of the distribution.
• International Trade Exposure series, Tradables component: Comprises all items whose prices are largely determined on the world market. For more information, see paragraph 12 below.
• International Trade Exposure series, Non-tradables component: Comprises all items not included in the Tradables component.
• All groups CPI, goods component: Comprises the food and non-alcoholic beverages group (except restaurant meals); alcohol and tobacco group; clothing and footwear group (except cleaning, repair and hire of clothing and footwear); furnishings, household equipment and services group (except domestic and household services sub-group); utilities, audio, visual and computing equipment and services, and newspapers, books and stationery sub-groups; and new dwelling purchase by owner-occupiers, pharmaceutical products, motor vehicles, automotive fuel, spare parts and accessories for motor vehicles, equipment for sports, camping and open-air recreation, games, toys and hobbies and pets and related products expenditure classes.
• All groups CPI, services component: Comprises all items not included in the 'All groups CPI, goods component'. A description of which series are goods or services is published in the Appendix of the December quarter 2017 issue of Consumer Price Index, Australia (cat. no 6401.0).
• All groups CPI including deposit and loan facilities (indirect charges): One of the outcomes of the 16th series CPI Review was to remove the indirectly measured component of the deposit and loan facilities index from the headline CPI but to include it in a new analytical series. This index includes the 17th series All groups CPI plus the indirectly measured component of the deposit and loan facilities index.
• Market goods and services excluding 'volatile items': in addition to the items excluded from the series 'All groups CPI excluding 'volatile items', also excludes: utilities, property rates and charges, child care, health, other services in respect of motor vehicles, urban transport fares, postal services, and education.
• All groups CPI excluding insurance and financial services: Reflecting the changing composition of the CPI, from the September quarter 1989 to the June quarter 1998, comprises the All groups CPI excluding house insurance, house contents insurance, vehicle insurance and mortgage interest charges and consumer credit charges; from the September quarter 1998 to the June quarter 2000 comprises the All groups CPI excluding house insurance, house contents insurance and vehicle insurance; from the September quarter 2000 to the June quarter 2005 comprises the All groups CPI excluding insurance services; from the September quarter 2005 to the June quarter 2011 comprises the All groups CPI excluding financial and insurance services; from the September quarter 2011 comprises the All groups CPI excluding insurance and financial services.
• All groups CPI excluding housing and insurance and financial services: Reflecting the changing composition of the CPI, from the September quarter 1989 to the June quarter 1998, comprises the All groups CPI excluding housing, house contents insurance, vehicle insurance and consumer credit charges; from the September quarter 1998 to the June quarter 2000 comprises the All groups CPI excluding housing, house insurance, house contents insurance and vehicle insurance; from the September quarter 2000 to the June quarter 2005 comprises the All groups CPI excluding housing and insurance services; from the September quarter 2005 to the June quarter 2011 comprises the All groups CPI excluding housing and financial and insurance services; from the September quarter 2011 comprises the All groups CPI excluding housing and insurance and financial services.
• All groups CPI excluding food and energy: Comprises the All groups CPI excluding the food and non-alcoholic beverages group (except restaurant meals); electricity, gas and other household fuels; and automotive fuel.
• All groups CPI excluding 'volatile items': Comprises the All groups CPI excluding fruit and vegetables and automotive fuel.

The International Trade Exposure series was reviewed and updated for the December quarter 2016. There were eight changes of classification outlined in the September quarter 2016 feature article 'Review of the Consumer Price Index International Trade Exposure Series' (cat. no. 6401.0): breakfast cereals; waters, soft drinks and juices; gas and other household fuels; therapeutic appliances and equipment; and newspaper, magazines and stationery were reclassified from non-tradables to tradables: and spirits; tobacco; and pharmaceutical products were reclassified from tradables to non-tradables. These changes are included from the December quarter 2016. The historical tradables and non-tradables series will not be revised. A description of which expenditure classes are tradables or non-tradables is published in the Appendix of the December quarter 2017 issue of Consumer Price Index, Australia (cat. no 6401.0).

Published index numbers, except for the underlying trend series, are rounded to one decimal place. Percentage change movements are calculated from the index numbers and then rounded to one decimal place. Rounding errors can occur, causing discrepancies (e.g. when calculating percentage changes of aggregates and their components). Underlying trend series, 'Trimmed mean' and 'Weighted median' index numbers are published to four decimal places. Percentage change movements are calculated from the published index numbers and rounded to one decimal place.

Seasonally adjusted estimates are derived by estimating and removing systematic calendar related effects from the original series. In most economic data these calendar related effects are a combination of the classical seasonal influences (e.g. the effect of the weather, social traditions or administrative practices such as government charges increasing on 1 July each year) plus other kinds of calendar related variations, such as Easter or the proximity of significant days in the year (e.g. Christmas). In the seasonal adjustment process, both seasonal and other calendar related factors evolve over time to reflect changes in activity patterns. The seasonally adjusted estimates reflect the sampling and non-sampling errors to which the original estimates are subject.

The CPI uses a concurrent seasonal adjustment methodology to derive the adjustment factors. This method uses the original time series available at each reference period to estimate seasonal factors for the current and previous quarters. Concurrent seasonal adjustment is technically superior to the more traditional method of reanalysing seasonal patterns once each year because it uses all available data to fine tune the estimates of the seasonal component each quarter. With concurrent analysis, the seasonally adjusted series are subject to revision each quarter as the estimates of the seasonal factors are improved. In most instances, the only significant revisions will be to the combined adjustment factors for the previous quarter and for the same quarter in the preceding year as the reference quarter (i.e. if the latest quarter is June quarter 2018 then the most significant revisions will be to March quarter 2018 and June quarter 2017). The seasonal patterns are also reanalysed on an annual basis or when there are known changes to regular events. This can lead to additional revisions.

Autoregressive integrated moving average (ARIMA) modelling can improve the revision properties of the seasonally adjusted and trend estimates. ARIMA modelling relies on the characteristics of the series being analysed to project future period data. The projected values are temporary, intermediate values, that are only used internally to improve the estimation of the seasonal factors. The projected data do not affect the original estimates and are discarded at the end of the seasonal adjustment process. From the December quarter 2012, the Consumer Price Index uses ARIMA modelling where appropriate for individual time series. The ARIMA model is assessed as part of the annual reanalysis. For more information on ARIMA modelling see Feature article: Use of ARIMA modelling to reduce revisions in the October 2004 issue of Australian Economic Indicators (cat. no. 1350.0).

The ABS applies seasonal adjustment to the expenditure class components of the CPI which are found to be seasonal, and then aggregates the seasonally adjusted and non-seasonally adjusted components to calculate the All groups CPI, seasonally adjusted, Trimmed mean and Weighted median estimates. The seasonally adjusted expenditure class components are available in Table 13 - CPI expenditure classes and selected analytical series, seasonally adjusted index numbers, weighted average of eight capital cities. The seasonal factors used to derive these seasonally adjusted indexes are available in Table 14 - CPI expenditure class, combined seasonal adjustment factors, weighted average of eight capital cities. For more information about seasonal adjustment of the CPI please refer to Information Paper: Seasonal Adjustment of Consumer Price Indexes (cat. no. 6401.0.55.003).

In analysing price movements in Australia, an important consideration is Australia's performance relative to other countries. However, a simple comparison of All groups (or headline) CPIs is often inappropriate because of the different measurement approaches used by countries for certain products, particularly housing and financial and insurance services. To provide a better basis for international comparisons, the 17th International Conference of Labour Statisticians adopted a resolution which called for countries to 'if possible, compile and provide for dissemination to the international community an index that excludes housing and financial services' in addition to the all-items index.

CPI original indexes are revised only in exceptional circumstances, such as to correct a significant error. As is the case with all price indexes, the index reference period (i.e. the period in which the index is set equal to 100.0) will be changed periodically. The index number levels for all periods will be changed by this process and it may also result in differences, due to rounding, between the percentage changes published on the old base and those on the new base. Seasonally adjusted indexes (including the Trimmed mean and Weighted median) for some quarters will be revised as extra quarters are included in the series analysed for seasonal influences (see paragraphs 14 to 17).

Current publications and other products released by the ABS are listed on the ABS website http://www.abs.gov.au. The ABS also issues a daily Release Advice on the website which details products to be released in the week ahead.

Users may also wish to refer to the following publications and other data products that are available free of charge from the ABS website:

• Information Paper: Introduction of the Consumer Price Index Weight Update, 2019 (cat. no. 6470.0.55.002)
• An update on the Annual Re-weighting of the Australian CPI and Living Cost Indexes, August 2018 (cat. no. 6401.0.60.006)
• Information Paper: Introduction of the 17th Series Australian Consumer Price Index, 2017 (cat. no. 6470.0.55.001)
• Consumer Price Index: 17th Series Weighting Pattern, Sep 2017 (cat. no. 6473.0)
• Consumer Price Index: Historical Weighting Patterns, 1948 - 2017 (cat. no. 6431.0)
• A Guide to the Consumer Price Index: 17th Series, 2017 (cat. no. 6440.0)
• Information Paper: An Implementation Plan to Annually Re-weight the Australian CPI, 2017 (cat.no. 6401.0.60.005)
• Information Paper: An Implementation Plan to Maximise the Use of Transactions Data in the CPI, Jun 2017 (cat.no. 6401.0.60.004)
• Enhancing the Australian CPI: A roadmap (cat. no. 6401.0.60.001)
• Information Paper: Increasing the Frequency of CPI Expenditure Class Weight Updates (cat. no. 6401.0.60.002)
• Information Paper: Making Greater Use of Transactions Data to compile the Consumer Price Index, Australia (cat. no. 6401.0.60.003)
• Consumer Price Index: Concepts, Sources and Methods (cat. no. 6461.0)
• Consumer Price Index: Correspondence with Household Expenditure Classification, Australia (cat. no. 6446.0.55.001)
• Information Paper: Seasonal Adjustment of Consumer Price Indexes (cat. no. 6401.0.55.003)
• Selected Living Cost Indexes, Australia (cat. no. 6467.0)
• Residential Property Price Indexes: Eight Capital Cities (cat. no. 6416.0)
• Producer Price Indexes, Australia (cat. no. 6427.0)
• International Trade Price Indexes, Australia (cat. no. 6457.0)
• Wage Price Index, Australia (cat. no. 6345.0)

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