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6401.0.55.003 - Seasonal Adjustment of Consumer Price Indexes, 2011  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 14/09/2011  First Issue
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SEASONAL ADJUSTMENT OF THE ALL GROUPS CPI


3.1 During the 16th series CPI review consultation in 2010, there was strong demand for the ABS to produce an All groups CPI, seasonally adjusted series to assist users in analysing price inflation. Seasonally adjusted CPI figures are currently produced, in addition to the headline CPI, by a number of international statistical agencies including Statistics Canada and the United States Bureau of Labour Statistics (BLS).

3.2 To calculate the All groups CPI, seasonally adjusted estimate, two approaches were considered: direct seasonal adjustment and aggregation of the seasonally adjusted components.

    • Direct seasonal adjustment of the original All groups CPI is not considered effective as there are a number of different seasonal components feeding into the original series making it difficult to identify the seasonal patterns. In a previous study conducted by the ABS (ABS, 2004), the All groups CPI was found not to have any stable seasonal pattern. However, some expenditure class components of the CPI did display a seasonal pattern.
    • Aggregation of the seasonally adjusted components 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, seasonally adjusted estimate. Analysis found the aggregation of seasonally adjusted components approach gives a robust All groups CPI, seasonally adjusted estimate and the results can also be used in the calculation of the Trimmed mean and Weighted median.
    3.3 Various approaches to seasonally adjust consumer price indexes were considered in a European taskforce in 2000 (ECB, 2000). The taskforce recommended the aggregation of the seasonally adjusted components approach which is the second methodology described above. The taskforce also recommended that price index level series, rather than growth rates, should be adjusted for seasonality.

    3.4 In line with these recommendations, the ABS will calculate an All groups CPI, seasonally adjusted figure by aggregating the seasonally adjusted and non-seasonally adjusted expenditure classes together using the weighting pattern (seasonally adjusted) at the weighted average of eight capital cities level from the September quarter 2011. As the seasonal adjustment process will be based on concurrent seasonal adjustment, the All groups CPI, seasonally adjusted estimates will be subject to revision. The original All groups CPI, weighted average of eight capital cities will continue to be the official inflation measure and will not be subject to revision.

    3.5 The following graph (Graph 3) compares the percentage change from previous quarter for the original All groups CPI and the All groups CPI, seasonally adjusted. Note that March quarters are typically high and December quarters typically low for the original series.

    GRAPH 3: ALL GROUPS CPI AND ALL GROUPS CPI, SEASONALLY ADJUSTED, Weighted average of eight capital cities - Percentage change from previous quarter
    GRAPH 3: ALL GROUPS CPI AND ALL GROUPS CPI, SEASONALLY ADJUSTED, Weighted average of eight capital cities - Percentage change from previous quarter

    3.6 Table 2 of Appendix 2 contains the index numbers for the All groups CPI, seasonally adjusted series at the weighted average of eight capital cities level. Table 3 of Appendix 2 shows the percentage change from previous quarter and corresponding quarter of previous year for the All groups CPI, seasonally adjusted series.

    3.7 The All groups CPI, seasonally adjusted, percentage change from previous quarter series provides users with information on the overall price change accounting for regular seasonal influences such as the education price rises in the March quarter of each year. Seasonal adjustment ensures that seasonal price movements are spread evenly over the year. The following gives an example of interpretation of the All groups CPI, seasonally adjusted results:
      • In the March quarter 2011, the percentage change from previous quarter for the All groups CPI, seasonally adjusted rose 1.4%, compared with the All groups CPI rise of 1.6%. The seasonally adjusted CPI was relatively lower in the March quarter 2011 as the systematic increase in components such as education every March quarter were removed. The percentage change from corresponding quarter of previous year for both the All groups CPI and the All groups CPI, seasonally adjusted, was 3.3%.
      • In the December quarter 2010, the percentage change from previous quarter for the All groups CPI, seasonally adjusted rose 0.8%, compared with the All groups CPI rise of 0.4%. The seasonally adjusted CPI was higher in the December quarter as it included the effect of systematic price rises from other quarters. For example, the December quarterly change for education is generally zero for education in original terms but will show a rise after seasonal adjustment. The percentage change from corresponding quarter of previous year for both the All groups CPI and the All groups, seasonally adjusted, was 2.7%.

    3.8 While the percentage change from previous quarter for the All groups CPI, seasonally adjusted may be higher or lower than the All groups CPI within a particular quarter, the long term price movement will be similar. The percentage change from corresponding quarter of previous year for the two All groups measures will be approximately the same, as it is comparing the same quarter in different years and the seasonal factors will be similar.

    3.9 For more information regarding seasonal adjustment and interpretation of results users should refer to Time Series Analysis: The Basics, available on the ABS website.

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