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6469.0 - Outcome of the 16th Series Australian Consumer Price Index Review, Dec 2010  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 06/12/2010  First Issue
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USER VIEWS

2.13 During the course of the review the ABS consulted with a broad cross-section of users. The views expressed on the principal purpose of the CPI fell into one of two camps.

2.14 Many of the submissions and participants at public consultation events supported the principal purpose of the CPI remaining a general measure of price inflation for the household sector and that the construction of the CPI should therefore remain on an acquisitions basis.

2.15 Others argued that the CPI should measure the purchasing power of incomes and should therefore be constructed accordingly. The credibility of the CPI for income indexation has been questioned in recent times, especially from groups in the community that have incomes indexed solely by the CPI, such as Commonwealth superannuants.

2.16 For example, similar issues were raised during the hearings for the 2008 Review of Pension Indexation Arrangements in Australian Government Civilian and Military Superannuation Schemes and again in submissions to the ABS CPI review.

2.17 Users also suggested that a single headline CPI cannot adequately deal with multiple purposes. Demand was expressed for a CPI whose principal purpose is the measurement of living costs. There was strong support for living cost indexes and the continued production of the existing range of Analytical Living Cost Indexes (ALCIs). Further enhancements of the ALCIs for policy purposes were sought.

2.18 The majority view from written user submissions was that the CPI should remain a measure of household price inflation. Most were in favour of retaining the acquisitions approach as the most appropriate method to construct the CPI.

2.19 During AG discussion, it was strongly argued that the CPI's principal purpose should remain as an input into monetary policy decision making, and that the acquisitions approach is the appropriate basis for this purpose. Several AG members, however, suggested that the treatment of OOH was not reflective of the experience of some Australians (due to the exclusion of interest payments).

2.20 Most AG members agreed that a single CPI cannot be expected to serve all purposes. However, the AG advised that a CPI designed to serve a specific purpose was preferable to an assortment of headline CPIs.

2.21 The AG supported the continuation and the development of alternative living cost indexes appropriate to particular population subgroups. The AG emphasised that any development of supplementary indexes should be driven by government policy as the proliferation of indexes, unless carefully managed, could lead to confusion around inflation measures.

2.22 On balance, the AG agreed that the CPI should remain a general measure of household price inflation and therefore supported the acquisitions approach as the most appropriate method for constructing the Australian CPI.

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