6470.0.55.001 - Information Paper: Introduction of the 17th Series Australian Consumer Price Index, 2017  
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APPENDIX 4 - UPDATE TO 16TH SERIES CPI REVIEW OUTCOMES


This appendix provides an update on progress with the outcomes from the 16th series CPI review, detailed in Outcome of the 16th Series Australian Consumer Price Index Review (cat. no. 6469.0).



OutcomeStatus

1.1 The principal purpose of the CPI is household inflation measurement and the acquisitions approach will remain the conceptual basis for compiling the CPI. Consistent with maintaining this conceptual basis, owner–occupied housing (OOH) will continue to be measured as the change in the price of gross fixed capital formation (GFCF of houses, net of land. A weighting pattern representative of all private households in the eight capital cities will continue to be used.Household inflation measurement continues to be principal purpose of the CPI. Consistent with this purpose, the acquisitions approach remains the conceptual basis for compiling the CPI.

1.2 The current quarterly publication of the outlays based Analytical Living Cost Indexes (ALCIs) and the Pensioner and Beneficiary Living Cost Index (PBLCI) will be maintained, and the current research to determine the need for improved coverage of outlets and products in the PBLCI will be completed. Where there is a clearly demonstrated need, and additional resources are provided, other complementary quarterly price indexes on an outlays basis will be produced for particular population subgroups on a case–by–case basis.The ALCIs and PBLCI publications were combined into a single product Selected Living Cost Indexes, Australia (cat. no. 6467.0) from the September quarter 2012 release.
Since the 16th series, additional outlets and products have been added to the PBLCI to enhance the coverage and the representativeness of price movements. This is an ongoing process for the ABS and is addressed through a rolling sample and index review program.
No user requirements for additional indexes compiled on an outlays basis have been identified.

1.3 There was significant demand for a monthly CPI. The ABS is persuaded there would be a significant benefit from more timely and responsive economic management if a CPI of equivalent quality to the current quarterly index were available monthly. Additional funding will be required to meet the costs involved in compiling a monthly index.In the absence of additional funding, the ABS has investigated alternative data sources and methods to facilitate the production of a monthly CPI. These include multilateral methods and data collection techniques such as webscraping.
Additionally, as part of the CPI's rolling review program, prices which are currently collected and compiled on a non–monthly basis are being assessed to determine if monthly collection is suitable. For further information on which ECs are currently collected monthly, see Attachment 2: Price Collection Schedule of Enhancing the Australian CPI: A roadmap (cat. no. 6401.0.60.001).

1.4 a) The indirectly measured component of the Deposit and loan facilities index (i.e. financial intermediation services indirectly measured (FISIM)) will be removed from the headline CPI from the commencement of the 16th series in September quarter 2011.Complete

1.4 b) The Deposit and loan facilities index will comprise direct fees and charges only and will be renamed 'Deposit and loan facilities - direct fees' from the commencement of the 16th series in September quarter 2011.Complete

1.4 c) A new analytical series, comprising the All groups CPI inclusive of FISIM, will be published on a quarterly basis from the commencement of the 16th series in September quarter 2011.Complete

1.4 d) The methodology for measuring the price of FISIM will be refined for the analytical series, informed by international developments in this area. An information paper covering the developments in the measurement of FISIM and other financial services will also be released.The ABS has engaged internationally in attempts to resolve the measurement challenges associated with FISIM. However, many of the challenges identified as part of the 16th series remain, and at present there is no internationally endorsed methodology for the measurement of FISIM. As a result, the ABS will not reintroduce FISIM into the headline CPI for the 17th series. The ABS will continue to produce the analytical series 'All groups CPI including Deposit and loan facilities (indirect charges)', and work with our international partners in the resolution of measurement challenges.

1.4 e) The ABS will continue to work with data providers (financial institutions) to obtain the high quality, detailed data necessary to measure FISIM robustly.Data quality for the FISIM measure has improved since the 16th series review. The ABS maintains strong relationships with the financial institutions providing data for FISIM and continually works with these providers to ensure a clear understanding of the data.

1.4 f) A Deposit and loan facilities index comprising direct fees and FISIM will be re–introduced into the headline CPI when the ABS is satisfied that the methodology and data are sufficiently robust to produce high quality estimates. The ABS plans to reintroduce FISIM measurement within the CPI in time for the 17th series CPI.See response to 1.4 d)

1.5 The ABS will investigate methodologies for other significant financial services that are currently not covered in the CPI (e.g. superannuation charges) and introduce them into the CPI when the ABS is satisfied that the methodology and data are sufficiently robust to produce high quality estimates.Superannuation and other significant financial services are continuing to be investigated as part of the ABS's rolling review program, which ensures estimates are fit–for–purpose and representative. It is noted that financial services are particularly difficult to measure due to data availability and methodological challenges.

1.6 Subject to availability of the additional funding required, the frequency of CPI weight updates will be increased from six–yearly to four–yearly, via a more frequent Household Expenditure Survey (HES).In the absence of additional funding, the ABS has reprioritised and investigated the use of alternative data sources to enhance the quality of the CPI and enable more frequent re–weighting. From 2018, the CPI will be annually re–weighted using National Accounts HFCE data in inter–HES years.

1.7 To ensure a robust measure of the CPI, strategies to minimise possible sources of bias in the CPI will be continued (e.g. the use of scanner data will be explored).The ABS commenced a research program in 2015 aimed at enhancing the Australian CPI. As a result of this program, the ABS is moving to annual re–weighting of the CPI and implementing multilateral methods for 28 ECs from the December quarter 2017. Both of these changes will enhance the representativity and quality of the CPI.

1.8 The ABS will provide more information on the quality adjustment processes used in the CPI to better inform the public on circumstances where quality adjustments take place.The ABS updated the Consumer Price Index: Concepts, Sources and Methods (cat. no. 6461.0) in 2016 to include additional information on the quality adjustment process. This publication will be updated annually to incorporate changes in data sources, processes and methods.

1.9 The ABS sees potential with the use of scanner data in the CPI, both to improve reliability and reduce data collection costs, and will continue to explore the use of scanner data for CPI and related purposes, leveraging international experience with the use of such data.The ABS has invested considerable resources in investigating the use of scanner data. Scanner data is currently used to price products that represent approximately 25% of the weight of the CPI. Furthermore, the ABS will be introducing multilateral methods for 28 ECs of the CPI from December quarter 2017. This will result in a census of products being used from the scanner data and the weighting of prices at the product level, enhancing the quality of the CPI.

1.10 The CPI and all related series will be presented on a reference base of 2009-10 = 100.0, commencing with the September quarter 2012 CPI.Complete

1.11 The Australian CPI will continue to use the ABS Consumer Price Index Commodity Classification (CPICC). The ABS will take action internationally to influence a revision of the Classification of Individual Consumption According to Purpose (COICOP) to address shortcomings which prevent its use as the primary product classification in the CPI.The ABS continues to engage and influence the international review of COICOP which is currently ongoing. Once this review is finalised, the ABS will investigate potential changes to the CPICC to align more closely with COICOP.

1.12 A correspondence between CPICC and the Input–Output Product Classification (IOPC) will be compiled and published for the 16th series CPI.Complete

1.13 The ABS will continue to produce analytical measures of underlying inflation. The current seasonal adjustment methods will be replaced by standard ABS seasonal adjustment methods. The ABS will produce seasonally adjusted estimates of the CPI, and of significant seasonal components (using standard ABS seasonal adjustment methodologies), from the commencement of the 16th series in September quarter 2011. The production of seasonally adjusted individual capital city indexes will be subject to appropriate funding. The unadjusted CPI will continue to be the official headline measure.Complete. No user requirements for seasonally adjusted indexes at the capital city level have been identified.

1.14 The ABS will publish an All groups excluding food and energy index as part of the analytical series, from the September quarter 2011.Complete

1.15 The ABS will update the tradable and non–tradable series classifications, from the September quarter 2011.Complete. The tradable and non–tradable series classifications were updated in the September quarter 2011, and again in the December quarter 2016.

1.16 The ABS will discontinue the Average Retail Prices (ARP) publication from the September quarter 2011; the June quarter 2011 release will be the final issue.Complete

1.17 The ABS will engage in discussions with potential users of low level CPI data to discuss how their needs might best be met on a case–by–case basis. The ABS will not develop a confidentialised unit record file (CURF) of collected prices.The ABS continues to engage with users as to how their lower level data requirements are best met.

1.18 The ABS will explore cost effective options to expand CPI coverage beyond capital cities. However, this must be considered in the context of competing priorities within the ABS work program.The data requirements to expand CPI coverage beyond the capital cities are being addressed through transactions data and webscraping.

1.19 The ABS will undertake the development and publication of annual spatial price indexes (SPIs) for capital cities, subject to appropriate funding and consideration of competing priorities within the ABS work program.Since the 16th series, the ABS has investigated the need to develop and publish spatial price indexes. No user requirements for these indexes have been identified at present.

1.20 The ABS will investigate annual SPIs with an expanded scope to include rest of state components, subject to appropriate funding and consideration of competing priorities within the ABS work program.As above