Review of the Australian CPI Introduction Minor review

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 engagement Advisory group 15 Members representing • Reserve Bank • Government departments • Academics • Statistics New Zealand • State governments

User engagement Information 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 engagement Submissions • 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 Pensioner and beneficiary living cost index Self-funded retiree households Other government transfer recipients households

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 series Exclusion-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 issues Geographic coverage of CPI: Interest in expanded coverage outside capital cities Spatial index: • Between capital cities and regional zones