Review of the Australian CPI

Introduction• Minor review

– 6 yearly– update weights using household expenditure survey

(HES)

• Major review– longer intervals– update weights– topical issues

Major issues• i. Principal purpose of the CPI

• ii. Compilation frequency of the CPI

• iii. Evaluation of the deposit and loan facilities index

• iv. Maintaining the relevance of the CPI

• v. Commodity classification

• vi. Analytical series

• vii. Other issues

User engagementAdvisory group

15 Members representing

•Reserve Bank•Government departments•Academics•Statistics New Zealand•State governments

User engagementInformation paper

www.abs.gov.au

User engagement“Road” show Advertised in

major newspapers

Mail out to 150 users

Eight capital cities

User engagement

Modern methods

User engagementSubmissions

• 52 written submissions

• 25 from organisations

• 27 from individuals

Public forums

• 80 attendees

Principal purpose of the CPI• Current principal purpose - measurement of household

inflation• Acquisitions approach (CPI 1998 – present)• Outlays approach (CPI 1960 – 1998) • Additional series such as the Analytical living cost index

(ALCI) and the Pensioner and beneficiary living cost index (PBLCI).

Analytical living cost indexes for selected household types

Employee households Age pensioner households

Self-funded retiree householdsOther government transfer

recipients households

Pensioner and beneficiary living cost index

Principal purpose of the CPI• Users agreed that the principal purpose

(household inflation) should remain unchanged

Compilation frequency• Currently quarterly• Calls for a monthly CPI • Arguments for a monthly CPI

– All OECD countries except Australia and New Zealand compile monthly

– IMF specifies CPIs should be monthly– More timely economic feedback and greater ability to pick

turning points

• Arguments against a monthly CPI– Complexity, quality and cost.

Compilation frequency

Monthly CPI• full replication of current quarterly

methodology• use of existing data

Compilation frequency

• strong but mixed views• financial and economic circles - strongly in

favour of monthly CPI provided current quality was maintained

• other users - no compelling need to change from quarterly

• concern about how move would be funded

Financial services

• indirect fees via interest rate margins– users agree that these should be included

• affected by volatility in interest rates• volatility during the global financial crisis• weight questioned• methodology not well understood

Maintaining the relevance of the CPI• 6-yearly weight updates

– users supported more frequent HES to enable CPI weights to be updated more often

– use of scanner data, for more frequent weight updates

• quality adjustment– users bothered by computers/cars

Commodity classification

• Australian CPI Commodity Classification (CPICC) only loosely based on COICOP but not strictly

• Should the CPICC concord with industry classifications such as the Input-Output Product Classification (IOPC)?

Analytical seriesExclusion-based measures• all groups excluding Housing & Financial and insurance

services• all groups excluding 'volatile items'

Consumer price measures & seasonal adjustment• trimmed mean• weighted median

Tradeable and non-tradeable components

Analytical series• user consensus on the value and

importance of current analytical series • most comments requested additional data• several requests for seasonally adjusted

CPI. However, universal preference for an unadjusted/ unrevised headline CPI

Other issuesSpatial index:•Between capital cities•Between capital cities and regional zones

Geographic coverage of CPI:Interest in expanded coverage outside capital cities