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6401.0 - Consumer Price Index, Australia, Dec 2011 Quality Declaration 
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 25/01/2012   
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EXPLANATORY NOTES


BRIEF DESCRIPTION OF THE CPI

1 The Consumer Price Index (CPI) measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households). This 'basket' covers a wide range of goods and services, arranged in the following eleven groups:

  • Food and non–alcoholic beverages
  • Alcohol and tobacco
  • Clothing and footwear
  • Housing
  • Furnishings, household equipment and services
  • Health
  • Transport
  • Communication
  • Recreation and culture
  • Education
  • Insurance and financial services.

2 Capital city indexes used by the CPI are based on the 2006 Australian Standard Geographical Classification (ASGC) statistical divisions. The capital city indexes measure price movements over time in each city individually. They do not measure differences in retail price levels between cities.

3 Further information about the CPI is contained in Australian Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0). An updated version reflecting the changes made during the 16th series review was released on 19 December 2011.


PRICES

4 The frequency of price collection by item varies as necessary to obtain reliable price measures. Prices of some items are volatile (i.e. their prices may vary many times each quarter) and for these items frequent price observations are necessary to obtain a reliable measure of the average price for the quarter. Each month prices are collected at regular intervals for goods such as milk, bread, fresh meat and seafood, fresh fruit and vegetables, alcohol, tobacco, women's outerwear, project homes, motor vehicles, petrol and holiday travel and accommodation. For most other items, price volatility is not a problem and prices are collected once a quarter. There are a few items where prices are changed at infrequent intervals, for example education fees where prices are set once a year. In these cases, the frequency of price collection is modified accordingly.

5 In order to facilitate a more even spread of field collection workload, the number of items for which prices are collected quarterly is distributed roughly equally across each month of each quarter. In all cases, however, individual items are priced in the same month of each quarter. For example, items for which prices are collected in the first month of the September quarter, July, are also priced in the first month of subsequent quarters, namely October, January and April.


WEIGHTING PATTERN

6 There are 87 expenditure classes (that is, groupings of like items) in the 16th series CPI and each expenditure class has its own weight, or measure of relative importance. In calculating the index, price changes for the various expenditure classes are combined using these weights.

7 Changes in the weighting pattern have been made at approximately six yearly intervals to take account of changes in household spending patterns. The CPI now comprises sixteen series of price indexes which have been linked to form a continuous series. The current and historical weighting patterns for the CPI for the weighted average of the eight capital cities are published in Consumer Price Index: Historical Weighting Patterns (1948 to 2011) (cat. no. 6431.0). The 16th series weighting pattern for the weighted average of eight capital cities and for each of the eight capital cities, as well as each city's percentage contribution to the weighted average, are also published in the Consumer Price Index: 16th Series Weighting Pattern (cat. no. 6471.0). Both publications are available on the ABS website <http://www.abs.gov.au>.


ANALYSIS OF CPI CHANGES

8 Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. The following example illustrates the method of calculating changes in index points and percentage changes between any two periods:
      All groups CPI: Weighted average of eight capital cities. Index numbers:
          June Quarter 2011 178.3 (see Table 1)
          less June Quarter 2010 172.1 (see Table 1)
          Change in index points 6.2
          Percentage change 6.2/172.1 x 100 = 3.6% (see Table 2)


PERCENTAGE CHANGES ARE CALCULATED TO ILLUSTRATE THREE DIFFERENT KINDS OF MOVEMENTS IN INDEX NUMBERS:

9 Percentage changes are calculated to illustrate three different kinds of movements in index numbers:
  • movements between consecutive financial years (where the index numbers for financial years are simple averages of the quarterly index numbers)
  • movements between corresponding quarters of consecutive years
  • movements between consecutive quarters.

10 Table 7 provides a detailed analysis, for the weighted average of eight capital cities, of movements in the CPI since the previous quarter, including information on movements for groups, sub–groups and expenditure classes. It also shows the contribution which each makes to the total CPI. For instance, the dairy and related products sub–group contributed 2.04 index points to the total All groups index number of 179.4 for the December Quarter 2011. The final column shows contributions to the change in All Groups index points by each group, sub–group and expenditure class.


ANALYTICAL SERIES

11 Various series are presented in Table 8 in this publication to assist users analyse the CPI. Some of the analytical series are compiled by taking subsets of the CPI basket, and most are self explanatory, such as 'All groups CPI excluding Food and non–alcoholic beverages'. ( A complete list of CPI groups, sub–groups and expenditure classes is contained in Tables 6 and 7). Other series and their composition are described below:
  • All groups CPI, seasonally adjusted: Comprises all components included in the All groups CPI, seasonally adjusted where seasonality has been identified at the weighted average of eight capital cities level. Seasonal adjustment factors are calculated using the history of price changes up to the current quarter CPI and are revised each quarter.
  • Underlying trend series, 'Trimmed mean' and 'Weighted median': These are two analytical measures of trend inflation calculated from the June quarter 2002 using standard ABS seasonal adjustment techniques. For more information see the Information Paper: Seasonal Adjustment of Consumer Price Indexes, 2011 (cat. no. 6401.0.55.003). The Trimmed mean and Weighted median are calculated using the distribution of expenditure classes each quarter derived as follows:
      • Where CPI expenditure classes are identified as having a seasonal pattern, quarterly price changes are estimated on a seasonally adjusted basis. In the 16th series, 62 out of the 87 expenditure classes are classified as seasonal. A description of which series are seasonal is published in Appendix 1 of the September quarter 2011 issue of Consumer Price Index, Australia (cat. no 6401.0).
      • The CPI expenditure classes are ranked from lowest to highest according to the seasonally adjusted percentage change from the previous quarter.
      • The seasonally adjusted relative weight of each expenditure class is calculated based on its previous quarter contribution to the All groups CPI.
      • The 'Trimmed mean' is calculated by using a weighted average of percentage change from the previous quarter (seasonally adjusted) from the middle 70 per cent of the distribution.
      • The 'Weighted median' is calculated using the percentage change from the previous quarter (seasonally adjusted) expenditure class at the 50th percentile of the distribution.
  • International trade exposure series, Tradables component: Comprises all items whose prices are largely determined on the world market. For more information, see paragraph 12 below.
  • International trade exposure series, Non–tradables component: Comprises all items not included in the Tradables component.
  • All groups CPI, goods component: Comprises the Food and non–alcoholic beverages group (except Restaurant meals); Alcohol and tobacco group; Clothing and footwear group (except Cleaning, repair and hire of clothing and footwear); Furnishings, household equipment and services group (except Domestic and household services sub–group); Utilities, Audio, visual and computing equipment and services, and Newspapers, books and stationery sub–groups; and New dwelling purchase by owner–occupiers, Pharmaceutical products, Motor vehicles, Automotive fuel, Spare parts and accessories for motor vehicles, Equipment for sports, camping and open–air recreation, Games, toys and hobbies and Pets and related products expenditure classes.
  • All groups CPI, services component: Comprises all items not included in the 'All groups CPI, goods component'. A description of which series are goods or services is published in Appendix 1 of the September quarter 2011 issue of Consumer Price Index, Australia (cat. no 6401.0).
  • All groups CPI including Deposit and loan facilities (indirect charges): One of the outcomes of the 16th series CPI Review was to remove the indirectly measured component of the Deposit and loan facilities index from the headline CPI but to include it in a new analytical series. This index includes the 16th series All groups CPI plus the indirectly measured component of the Deposit and loan facilities index.
  • Market goods and services excluding 'volatile items': in addition to the items excluded from the series 'All groups CPI excluding 'volatile items'', also excludes: Utilities, Property rates and charges, Child care, Health, Other services in respect of motor vehicles, Urban transport fares, Postal services, and Education.
  • All groups CPI excluding Insurance and financial services: Reflecting the changing composition of the CPI, from the September quarter 1989 to the June quarter 1998, comprises the All groups CPI excluding house insurance, house contents insurance, vehicle insurance and mortgage interest charges and consumer credit charges; from the September quarter 1998 to the June quarter 2000 comprises the All groups CPI excluding house insurance, house contents insurance and vehicle insurance; from the September quarter 2000 to the June quarter 2005 comprises the All groups CPI excluding insurance services; from the September quarter 2005 to the June quarter 2011 comprises the All groups CPI excluding Financial and insurance services; from the September quarter 2011 comprises the All groups CPI excluding Insurance and financial services.
  • All groups CPI excluding Housing and Insurance and financial services: Reflecting the changing composition of the CPI, from the September quarter 1989 to the June quarter 1998, comprises the All groups CPI excluding Housing, house contents insurance, vehicle insurance and consumer credit charges; from the September quarter 1998 to the June quarter 2000 comprises the All groups CPI excluding Housing, house insurance, house contents insurance and vehicle insurance; from the September quarter 2000 to the June quarter 2005 comprises the All groups CPI excluding Housing and insurance services; from the September quarter 2005 to the June quarter 2011 comprises the All groups CPI excluding Housing and Financial and insurance services; from the September quarter 2011 comprises the All groups CPI excluding Housing and Insurance and financial services.
  • All groups CPI excluding food and energy: Comprises the All groups CPI excluding the Food and non–alcoholic beverages group (except Restaurant meals); Electricity, Gas and other household fuels; and Automotive fuel.
  • All groups CPI excluding 'volatile items': Comprises the All groups CPI excluding Fruit and vegetables and Automotive fuel.

12 The International trade exposure series was reviewed and updated for the 16th series. There were five changes of classification. 'Cakes and biscuits' and 'Jams, honey and spreads' were reclassified from non–tradable to tradable. 'Waters, soft drinks and juices', 'Newspapers, magazines and stationery' and 'Pets and related products ' were reclassified from tradable to non–tradable. A description of which series are tradable or non–tradable is published in Appendix 1 of the September quarter 2011 issue of Consumer Price Index, Australia (cat. no 6401.0). These changes are included from the September quarter 2011. The historical tradable and non–tradable series will not be revised.


ROUNDING

13 The published index numbers have been rounded to one decimal place, and the percentage changes (also rounded to one decimal place) are calculated from the rounded index numbers. In some cases, this can result in the percentage change for the total level of a group of indexes being outside the range of the percentage changes for the component level indexes. Seasonally adjusted estimates are calculated from rounded index numbers. The underlying trend estimates, Trimmed mean and Weighted median, are calculated from unrounded component series. The percentage changes for the seasonal and underlying series (rounded to one decimal place) are calculated from the rounded index numbers.


SEASONALLY ADJUSTED INDEXES

14 Seasonally adjusted estimates are derived by estimating and removing systematic calendar related effects from the original series. In most economic data these calendar related effects are a combination of the classical seasonal influences (e.g. the effect of the weather, social traditions or administrative practices such as government charges increasing on 1 July each year) plus other kinds of calendar related variations, such as Easter or the proximity of significant days in the year (e.g. Christmas). In the seasonal adjustment process, both seasonal and other calendar related factors evolve over time to reflect changes in activity patterns. The seasonally adjusted estimates reflect the sampling and non–sampling errors to which the original estimates are subject.

15 The CPI uses a concurrent seasonal adjustment methodology to derive the adjustment factors. This method uses the original time series available at each reference period to estimate seasonal factors for the current and previous quarters. Concurrent seasonal adjustment is technically superior to the more traditional method of reanalysing seasonal patterns once each year because it uses all available data to fine tune the estimates of the seasonal component each quarter. With concurrent analysis, the seasonally adjusted series are subject to revision each quarter as the estimates of the seasonal factors are improved. In most instances, the only significant revisions will be to the combined adjustment factors for the previous quarter and for the same quarter in the preceding year as the reference quarter (i.e. if the latest quarter is September quarter 2011 then the most significant revisions will be to June quarter 2011 and September quarter 2010). The seasonal patterns are also reanalysed on an annual basis or when there are known changes to regular events. This can lead to additional revisions.

16 The ABS applies seasonal adjustment to the expenditure class components of the CPI which are found to be seasonal, and then aggregates the seasonally adjusted and non–seasonally adjusted components to calculate the All groups CPI, seasonally adjusted, Trimmed mean and Weighted median estimates. The seasonally adjusted expenditure class components are available in Table 15 – CPI expenditure class, seasonally adjusted index numbers, weighted average of eight capital cities. The seasonal factors used to derive these seasonally adjusted indexes can be obtained by contacting the CPI section via email: prices.statistics@abs.gov.au. For more information about seasonal adjustment of the CPI please refer to Information Paper: Seasonal Adjustment of Consumer Price Indexes, 2011 (cat. no. 6401.0.55.003).


INTERNATIONAL COMPARISONS

17 In analysing price movements in Australia, an important consideration is Australia's performance relative to other countries. However, a simple comparison of All groups (or headline) CPIs is often inappropriate because of the different measurement approaches used by countries for certain products, particularly housing and financial and insurance services. To provide a better basis for international comparisons, the 17th International Conference of Labour Statisticians adopted a resolution which called for countries to 'if possible, compile and provide for dissemination to the international community an index that excludes housing and financial services' in addition to the all–items index.

18 Table 9 presents indexes for selected countries on a basis consistent with the above resolution and comparable to the Australian series 'All groups excluding Housing and Insurance and financial services' (see paragraph 11). However, other than Australia and New Zealand, the countries represented in this table are yet to develop indexes on this basis, so the indexes presented here are consistent with the series previously published for All groups excluding Housing. To facilitate comparisons, all indexes in this table have been converted, where necessary, to a quarterly basis and re–referenced to an index reference period of 1989–90 = 100.0. Index numbers and percentage changes are always published to one decimal place, and the percentage changes are calculated from the rounded index numbers. Index numbers for periods longer than a single quarter (e.g. for financial years) are calculated as the simple arithmetic average of the rounded quarterly index numbers.

19 In producing Table 9, the ABS is grateful for the assistance of the relevant national statistical agencies which have either directly supplied indexes for all items excluding housing and insurance and financial services or data to enable their derivation.


REVISIONS

20 CPI original indexes are revised only in exceptional circumstances, such as to correct a significant error. As is the case with all price indexes, the index reference period (i.e. the period in which the index is set equal to 100.0) will be changed periodically. The index number levels for all periods will be changed by this process and it may also result in differences, due to rounding, between the percentage changes published on the old base and those on the new base. Seasonally adjusted indexes (including the Trimmed mean and Weighted median) for some quarters will be revised as extra quarters are included in the series analysed for seasonal influences (see paragraphs 14 to 16).


RELATED PUBLICATIONS

21 Current publications and other products released by the ABS are listed on the ABS website <http://www.abs.gov.au>. The ABS also issues a daily Release Advice on the website which details products to be released in the week ahead.

22 Users may also wish to refer to the following publications and other data products that are available free of charge from the ABS website:

DATA AVAILABLE

23 As well as the statistics included in this publication, there is more detailed data for each capital city available on the ABS website. Inquiries should be made to the National Information and Referral Service on 1300 135 070.


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