ABS response to letter to the editor 'Pensioner poverty and stress for real' (Australian Financial Review18 September, pg 67)

Michael O'Neill's comments on the Consumer Price Index (CPI) in his letter 'Pensioner poverty and stress for real' - AFR 18/9/08 might cause some misunderstanding and concern about the Australian Bureau of Statistics (ABS) CPI.

It would be to throw the baby out with the bath water to leave any impression, that because the CPI cannot serve all detailed purposes precisely, that it is not fit for its intended purpose. The truth is, that it is a robust measure of the price change experienced by Australian households and its compilation reflects world best practice.

It is true that the Australian CPI is designed to provide a general measure of price inflation for the household sector, but it also provides the best available broad measure of changes in the cost of living faced by Australian households.

While ABS analytical living cost indexes have broadly tracked the movements of the CPI over a ten year period, they do provide a timely indication of short term differences in living costs for selected household types.

It is also true that the CPI is currently compiled using expenditure patterns derived from the 2003-4 Household Expenditure Survey for broad groups of goods and services, but it is important to also be aware that the actual goods and services priced by the ABS, quarter-to-quarter, are updated very frequently, to ensure that the price changes that households are actually experiencing drive the movements of the CPI.

Bronwyn Driscoll
Macroeconomics Division
Australian Bureau of Statistics