6401.0 - Consumer Price Index, Australia, Mar 2017 Quality Declaration 
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 02/06/2017   
   Page tools: Print Print Page Print all pages in this productPrint All RSS Feed RSS Bookmark and Share Search this Product

Consumer spending patterns and price change: How does electricity compare?
This analysis has been undertaken by staff from the Consumer Price Index Section of the ABS.


INTRODUCTION

Electricity prices have been the subject of significant public attention in recent months. In part this is because electricity prices paid by consumers have increased by 39 per cent between June 2011 and March 2017. Prices for other household utilities have also increased over the same period. Water and sewerage prices have increased by 24 per cent and Gas and other household fuel prices have increased by 41 per cent. These increases in utility prices have been sourced from the Consumer Price Index (CPI) (ABS cat. no. 6401.0). The CPI measures changes in the price of a fixed basket of goods and services acquired by consumers in metropolitan private households, which is published quarterly by the Australian Bureau of Statistics (ABS).


ANALYSIS

To compile the CPI, prices for a wide range of goods and services purchased by Australian households are weighted together to produce an aggregate CPI. These weights reflect the spending patterns of Australian households. These spending patterns represent a fixed quantity of goods and services multiplied by their price. The spending patterns of Australian households are categorised to the 87 CPI Expenditure Classes. The current household spending patterns used to compile the CPI are obtained from the Household Expenditure Survey (HES) for the 2009-10 financial year.

The HES data are used to calculate average weekly household spending patterns. Figure 1 ranks the top 20 CPI Expenditure Classes by their contribution to the average weekly expenditure by Australian households in 2011. Housing costs feature significantly in the highest Expenditure Classes including the top two: New dwelling purchase by owner-occupiers and Rents, as well as Electricity and Maintenance and repair of the dwelling. A complete list of the Expenditure Class rankings can be found in Attachment 1.

FIGURE 1: TOP 20 CPI EXPENDITURE CLASSES RANKED BY AVERAGE WEEKLY HOUSEHOLD EXPENDITURE, 2011

Figure 1: Top 20 CPI Expenditure Classes ranked by average weekly expenditure, 2011
Source: Consumer Price Index 16th Series Weighting Pattern, 2011 (ABS cat. no. 6471.0, Table 5)

The spending patterns of Australian households in 2011 reveal a number of interesting facts. The average Australian household was spending $27.31 per week on electricity in 2011. Electricity ranked 15 out of the 87 CPI expenditure classes in terms of its contribution to the total average weekly expenditure. The $27.31 per week spent by households on electricity compared to $65.05 per week on Beer, wine and spirits; $31.77 per week on Tobacco; $35.97 per week on Takeaway and fast food; and $48.67 on Automotive fuel. The lowest ranked expenditure class was Eggs at $1.48 per week. These data suggest that while electricity plays a critical role in the lives of Australian households, the proportion of spending on electricity (at approximately 1.99 per cent) in 2011 was relatively small in the context of total household spending.

Price growth since the implementation of the 2009-10 spending patterns in the CPI has been variable across the goods and services within Expenditure Classes in the CPI basket. Price growth for some CPI Expenditure Classes has increased more than others, while some Expenditure Classes have experienced price falls: cheese, milk, bread, household appliances are a few examples, over the period June 2011 to March 2017 (see Attachment 2 for price growth rates by CPI expenditure class for the period June quarter 2011 to March quarter 2017).

Figure 2 lists the top 20 Expenditure Classes by price growth compared to the All Groups CPI since the period the 2009-10 HES data were introduced in CPI in the June quarter 2011. While the All groups CPI increased 11.4 per cent over this time, both Electricity and Gas and other household fuels increased around 40 per cent.

FIGURE 2: TOP 20 CPI EXPENDITURE CLASSES RANKED BY PRICE GROWTH, JUNE QUARTER 2011 TO MARCH QUARTER 2017
Figure 2: Top 20 CPI Expenditure Class Price Growth and the All Groups CPI, June quarter 2011 to March quarter 2017
Source: Consumer Price Index, Australia (ABS cat.no. 6401.0, Table 7)

By utilising the average weekly expenditure values in 2011 and applying the growth rates between June 2011 and March 2017, you are able to calculate the average weekly expenditure for each CPI Expenditure Class in 2017. Figure 3 ranks the Expenditure Classes as at the March quarter 2017. The quantity of goods and services in each Expenditure Class purchased by Australian households has remained fixed over the period. Price changes have been applied to the quantities in each Expenditure Class. The Expenditure Classes have again been ranked by contribution to the average weekly expenditure by Australian households (a complete list of the rankings by Expenditure Class can be found in Attachment 3).

FIGURE 3: TOP 20 CPI EXPENDITURE CLASSES RANKED BY AVERAGE WEEKLY HOUSEHOLD EXPENDITURE, 2017
Figure 3: Top 20 CPI Expenditure Classes ranked by average weekly expenditure, March quarter 2017


Price growth in the Electricity Expenditure Class has resulted in its contribution ranking increase from 15 of 87, to 11 of 87 CPI Expenditure Classes over the period June quarter 2011 to March quarter 2017. This is a result of electricity prices increasing faster than other Expenditure Classes. By applying the price change in electricity to the quantity of electricity purchased suggests the average Australian household now spends $37.93 per week on electricity, which represents 2.48 per cent of total household spending (up from 1.99 per cent).

The ranking of a number of other Expenditure Classes has also changed including: Tobacco’s ranking has increased from 11 to 4; Automotive fuel’s ranking has decreased from 3 to 5; Child care’s ranking has increased from 48 to 32; and Audio, visual and computing equipment’s ranking has decreased from 20 to 40.


NEW SPENDING PATTERNS TO BE IMPLEMENTED IN THE CPI IN DECEMBER QUARTER 2017

The assumption of spending patterns reflecting a fixed quantity of goods and services multiplied by their price doesn’t hold over long periods of time. Where prices of goods and services grow at different rates, consumers continually make decisions about the quantity of these goods and services they purchase. Economic theory suggests consumers will substitute towards relatively cheaper goods and services and away from those that have become relatively more expensive. This concept is defined as the elasticity of substitution in the economic literature. Elasticity of substitution shows to what degree two goods or services can be substitutes for one another. It is measured as the ratio of proportionate change in the relative demand for two goods to the proportionate change in their relative prices. For example, consumers may substitute beef products with chicken in periods where beef has become relatively more expensive compared to chicken.

In addition, for products like electricity, it’s not possible for consumers to easily substitute another product for electricity when prices rise. Instead, consumers will most likely modify their use of electricity resulting in changes in the quantity of electricity consumed by households. This may include the purchase of new household appliances that uses less electricity. The concept described here is the price elasticity of demand. This is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.

While consumers do undertake substitution behaviour and change the quantity of goods and services purchased, the unavailability of regular spending pattern data to date means that spending patterns (i.e. the quantities of goods and services) used to compile the CPI have remained fixed over a period of years.

New Australian household spending patterns will be implemented in the December quarter 2017 CPI. This CPI publication is due for release on 31 January 2018. These new Australian household spending patterns will be based on data from the Household Expenditure Survey for the 2015-16 financial year. The availability of these new spending patterns will allow the ABS to communicate to the Australian public how the expenditure on goods and services purchased by Australian households have changed over time. One area of particular interest will be how electricity price growth has impacted household spending on electricity over recent years.

The ABS will publish the new household expenditure patterns in November 2017; and then use these data to compile the December quarter 2017 CPI.


INCREASING THE FREQUENCY OF CPI SPENDING PATTERN UPDATES

Ideally, changes in Australian household spending patterns would be more frequently reflected in the CPI. For this reason the ABS has, over the recent year or so, conducted research in an effort to update household spending patterns in the CPI more frequently. The availability of annual Household Final Consumption Expenditure (HFCE) data from the National Accounts now provides the ABS with an opportunity to update CPI spending patterns annually. The ABS released the Information Paper Increasing the Frequency of CPI Expenditure Class Weight Updates (ABS cat.no. 6401.0.60.002) on 11 July 2016. The ABS has consulted widely on this proposal, including a call for public submissions. In June 2017 the ABS will publish the outcomes of this consultation and present future plans.



ATTACHMENT 1: CPI EXPENDITURE CLASSES RANKED BY AVERAGE WEEKLY HOUSEHOLD EXPENDITURE, 2011

Expenditure Class
$

Eggs
1.48
Cleaning, repair and hire of clothing and footwear
1.63
Postal services
1.69
Footwear for infants and children
1.72
Footwear for men
1.93
Jams, honey and spreads
1.98
Therapeutic appliances and equipment
1.99
Oils and fats
2.38
Breakfast cereals
2.41
Other cereal products
2.88
Small electric household appliances
3.25
Lamb and goat
3.55
Tools and equipment for house and garden
3.60
Coffee, tea and cocoa
3.76
Carpets and other floor coverings
3.81
Cleaning and maintenance products
3.98
Food additives and condiments
4.18
Garments for infants and children
4.21
Cheese
4.63
Footwear for women
4.67
Pork
4.98
Pets and related products
5.17
Other meats
5.22
Ice cream and other dairy products
5.29
Beef and veal
5.35
Books
5.42
Veterinary and other services for pets
5.47
Fish and other seafood
5.57
Milk
5.81
Glassware, tableware and household utensils
5.87
Other food products n.e.c.
6.42
Poultry
6.77
Major household appliances
6.85
Preschool and primary education
7.18
Dental services
7.62
Bread
7.95
Equipment for sports, camping and open-air recreation
8.34
Household textiles
8.42
Newspapers, magazines and stationery
9.33
Child care
9.47
Other household services
9.52
Gas and other household fuels
9.83
Accessories
10.11
Urban transport fares
10.14
Cakes and biscuits
10.17
Garments for men
10.21
Deposit and loan facilities (direct charges)
10.37
Games, toys and hobbies
10.73
Waters, soft drinks and juices
11.87
Water and sewerage
12.31
Hairdressing and personal grooming services
12.39
Spirits
12.44
Sports participation
12.89
Snacks and confectionery
13.34
Audio, visual and computing media and services
13.43
Spare parts and accessories for motor vehicles
13.61
Other recreational, sporting and cultural services
14.94
Personal care products
15.15
Pharmaceutical products
16.09
Secondary education
17.24
Property rates and charges
17.33
Vegetables
18.42
Other services in respect of motor vehicles
18.52
Tertiary education
19.25
Insurance
19.25
Other non-durable household products
20.04
Garments for women
20.09
Audio, visual and computing equipment
21.33
Fruit
21.97
Furniture
22.42
Wine
22.47
Maintenance and repair of motor vehicles
22.90
Electricity
27.31
Maintenance and repair of the dwelling
28.10
Beer
30.19
International holiday travel and accommodation
31.42
Tobacco
31.77
Domestic holiday travel and accommodation
33.83
Take away and fast foods
35.97
Restaurant meals
38.55
Other financial services
40.09
Telecommunication equipment and services
40.12
Motor vehicles
44.56
Medical and hospital services
46.85
Automotive fuel
48.67
Rents
92.01
New dwelling purchase by owner-occupiers
118.86
Total
1371.30

Source: Consumer Price Index 16th Series Weighting Pattern, 2011 (ABS cat.no. 6471.0, Table 5)


ATTACHMENT 2: CPI EXPENDITURE CLASSES RANKED BY PRICE GROWTH, JUNE QUARTER 2011 TO MARCH QUARTER 2017

Expenditure Class
%

Audio, visual and computing equipment
- 44.3
Fruit
- 28.4
Household textiles
- 15.0
Games, toys and hobbies
- 13.3
Telecommunication equipment and services
- 12.3
Garments for women
- 10.0
Small electric household appliances
- 10.0
Glassware, tableware and household utensils
- 9.5
Motor vehicles
- 8.2
Major household appliances
- 7.9
Other cereal products
- 7.8
Personal care products
- 7.6
Automotive fuel
- 7.4
Footwear for infants and children
- 5.6
Bread
- 5.5
Ice cream and other dairy products
- 5.3
Audio, visual and computing media and services
- 5.2
Footwear for men
- 5.0
Cleaning and maintenance products
- 4.1
Poultry
- 3.7
Garments for infants and children
- 3.7
Breakfast cereals
- 3.6
Furniture
- 3.4
Lamb and goat
- 3.3
Footwear for women
- 3.2
Milk
- 2.9
Other food products n.e.c.
- 1.7
Cheese
- 1.2
Food additives and condiments
- 0.7
Garments for men
- 0.7
Waters, soft drinks and juices
- 0.3
Books
0.3
Therapeutic appliances and equipment
0.9
Deposit and loan facilities (direct charges)
1.8
Wine
2.0
Equipment for sports, camping and open-air recreation
2.3
Pharmaceutical products
2.4
Other non-durable household products
2.5
Cakes and biscuits
2.8
Snacks and confectionery
3.4
Pets and related products
4.4
Jams, honey and spreads
4.6
Oils and fats
4.7
Tools and equipment for house and garden
5.7
Accessories
5.8
Carpets and other floor coverings
6.9
International holiday travel and accommodation
7.3
Fish and other seafood
8.1
Spare parts and accessories for motor vehicles
8.2
Eggs
8.8
Pork
9.4
Other financial services
9.4
Urban transport fares
9.6
Coffee, tea and cocoa
10.0
Restaurant meals
11.3
All groups CPI
11.4
Spirits
12.1
Maintenance and repair of motor vehicles
12.8
Take away and fast foods
13.1
Maintenance and repair of the dwelling
13.1
Hairdressing and personal grooming services
13.1
Other meats
14.0
Rents
14.0
Dental services
14.2
Vegetables
15.7
Cleaning, repair and hire of clothing and footwear
16.1
New dwelling purchase by owner-occupiers
16.5
Postal services
17.4
Beer
17.8
Domestic holiday travel and accommodation
17.8
Newspapers, magazines and stationery
18.4
Other household services
20.7
Sports participation
21.6
Veterinary and other services for pets
22.3
Beef and veal
23.3
Water and sewerage
24.2
Other recreational, sporting and cultural services
24.6
Other services in respect of motor vehicles
28.0
Tertiary education
28.2
Insurance
30.0
Preschool and primary education
32.9
Secondary education
37.3
Electricity
38.9
Property rates and charges
39.1
Medical and hospital services
39.7
Gas and other household fuels
41.1
Child care
57.0
Tobacco
83.7

Source: Consumer Price Index, Australia (ABS cat.no. 6401.0, Table 7)


ATTACHMENT 3: CPI EXPENDITURE CLASSES RANKED BY AVERAGE WEEKLY HOUSEHOLD EXPENDITURE, 2017

Expenditure Class
$

Eggs
1.61
Footwear for infants and children
1.62
Footwear for men
1.83
Cleaning, repair and hire of clothing and footwear
1.89
Postal services
1.98
Therapeutic appliances and equipment
2.01
Jams, honey and spreads
2.07
Breakfast cereals
2.32
Oils and fats
2.49
Other cereal products
2.66
Small electric household appliances
2.93
Lamb and goat
3.43
Tools and equipment for house and garden
3.81
Cleaning and maintenance products
3.82
Garments for infants and children
4.05
Carpets and other floor coverings
4.07
Coffee, tea and cocoa
4.14
Food additives and condiments
4.15
Footwear for women
4.52
Cheese
4.57
Ice cream and other dairy products
5.01
Glassware, tableware and household utensils
5.31
Pets and related products
5.40
Books
5.44
Pork
5.45
Milk
5.64
Other meats
5.95
Fish and other seafood
6.02
Major household appliances
6.31
Other food products n.e.c.
6.31
Poultry
6.52
Beef and veal
6.60
Veterinary and other services for pets
6.69
Household textiles
7.16
Bread
7.51
Equipment for sports, camping and open-air recreation
8.53
Dental services
8.70
Games, toys and hobbies
9.30
Preschool and primary education
9.54
Garments for men
10.14
Cakes and biscuits
10.45
Deposit and loan facilities (direct charges)
10.56
Accessories
10.70
Newspapers, magazines and stationery
11.05
Urban transport fares
11.11
Other household services
11.49
Waters, soft drinks and juices
11.83
Audio, visual and computing equipment
11.88
Audio, visual and computing media and services
12.73
Snacks and confectionery
13.79
Gas and other household fuels
13.87
Spirits
13.95
Personal care products
14.00
Hairdressing and personal grooming services
14.01
Spare parts and accessories for motor vehicles
14.73
Child care
14.87
Water and sewerage
15.29
Sports participation
15.67
Fruit
15.73
Pharmaceutical products
16.48
Garments for women
18.08
Other recreational, sporting and cultural services
18.62
Other non-durable household products
20.54
Vegetables
21.31
Furniture
21.66
Wine
22.92
Secondary education
23.67
Other services in respect of motor vehicles
23.71
Property rates and charges
24.11
Tertiary education
24.68
Insurance
25.03
Maintenance and repair of motor vehicles
25.83
Maintenance and repair of the dwelling
31.78
International holiday travel and accommodation
33.71
Telecommunication equipment and services
35.19
Beer
35.56
Electricity
37.93
Domestic holiday travel and accommodation
39.85
Take away and fast foods
40.68
Motor vehicles
40.91
Restaurant meals
42.91
Other financial services
43.86
Automotive fuel
45.07
Tobacco
58.36
Medical and hospital services
65.45
Rents
104.89
New dwelling purchase by owner-occupiers
138.47
Total
1526.47