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1504.0 - Methodological News, Sep 2003  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 27/02/2004   
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DEVELOPING EXPERIMENTAL SPATIAL PRICE INDEXES FOR AUSTRALIA

The Australian Bureau of Statistics (ABS) has for many years published the Consumer Price Index (Consumer Price Index, Australia Cat. no. 6401.0). The Consumer Price Index (CPI) measures the movements over time in retail prices of goods and services commonly purchased by metropolitan households. Although a separate index is available for each of the 8 capital cities (i.e. Sydney, Melbourne, Brisbane, Adelaide, Perth, Hobart, Darwin and Canberra), the eight indexes cannot be used to compare price levels between the cities.

This project assesses the feasibility of using existing CPI data to produce experimental measures of price differences between the eight capital cities (i.e. spatial price indexes). The indexes cover the year ended June 2002.

Using the CPI sample to compare prices between cities posed some theoretical and practical problems. For example, some items are priced in only one capital city and the item specifications may vary slightly from city to city. These properties of the dataset do not hinder the construction of intertemporal indexes, but are a major hindrance to the construction of spatial indexes. Thus, the first stage of the study addressed the problem of bridging gaps in the dataset and resolving differences in specifications.

The spatial price indexes were calculated based on the multilateral Elteto-Koves-Shultz (EKS) formula. This formula directly compares prices of individual goods and services consumed in the eight capital cities and, in the process of aggregating individual price data, takes into account local consumption habits. The EKS formula has been used by the OECD's Purchasing Power Parities (PPPs) Program in the construction of its official PPPs.

So far indexes have been produced for the following CPI groups: food; alcohol and tobacco; clothing and footwear; household furnishings, supplies and services; health; transportation; communication; recreation; and education.

Preliminary assessments suggest that the index numbers look broadly plausible. However, price observations for some "services" such as Housing and Miscellaneous were deemed unsuitable for spatial comparisons and consequently they have been excluded from the spatial price indexes for time being. The index numbers for health, education and transportation showed larger inter-city variations than expected and as a result need further investigation. Work will continue to improve these areas in the future.

A paper presenting the experimental spatial price indexes is planned and any comments and suggestions would be appreciated. The paper reports our work-in-progress thus far. As a result, the indexes should not be used in policy debates, or for official purposes, until the ABS validates the statistics and publishes them in an official publication

For more information, please contact Alex Waschka on 02 6252 6992 or Shiji Zhao on 02 6252 6053.

Email: alex.waschka@abs.gov.au.

Shiji.zhao@abs.gov.au.


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