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CPI unlikely to reflect the price experience of individual households

The CPI is designed to measure changes in retail prices experienced by all metropolitan private households in aggregate. The composition of the basket and the relative importance of items in it relate to this population group as a whole - it represents the expenditures of all households, not the expenditure pattern of the average household or of any particular household type or size. The basket comprises all consumer goods and services acquired over a twelve month period. It includes items acquired infrequently by an individual household (e.g. major electrical appliances, new motor vehicles), items that are acquired almost daily by all households (e.g. bread and milk) and items that are only available at certain times of the year. The basket includes, for example, both rent payments of renting households and the amounts paid by owner occupier households for the purchase of their principal residence—no individual household can incur both expenses at the same time. Changes in the CPI are therefore unlikely to reflect exactly the price experience of particular households.

The CPI does not measure those changes in living costs which may be experienced by individual households as a direct consequence of their progression through the life cycle. For example younger households may incur a higher proportion of their expenditure on housing and child care while those households entering the older age groups may incur increasing expenditure on medical services. However, changes in the demographic make-up of households in aggregate and differences in expenditure patterns will affect the pattern of total household expenditure recorded in the HES. In turn, these changes will be incorporated in the weighting pattern in the CPI.

CPI cannot be used to measure price levels

The CPI is also not designed to measure price levels; rather its purpose is to measure changes in prices over time. While price levels in country regions often differ from those in metropolitan areas (some higher and others lower), the factors influencing price movements generally tend to be similar. Therefore the CPI can be expected to provide a reasonable indication of the changes in prices in Australia as a whole in the longer term.

Similarly, the CPI cannot be used to compare price levels between capital cities. For example, the fact that the CPI All groups index in the September quarter 1998 for Adelaide (123.0) was higher than in Perth (119.6) does not indicate that Adelaide was more expensive to live in than Perth. Rather, it indicates that prices in Adelaide had risen more than in Perth since 1989–90.

At the end of the day, the CPI is most useful as an indicator of price movements, whether it be for specific items, a particular city, or the economy as a whole. The CPI is not a precise measure of individual household price experiences.