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2.4 Challenges arise because the CPI and HFCE estimates are produced for different purposes and use different data sources. Proposed treatments to each of these challenges were addressed in the chapter Methods and practical considerations of the information paper (cat. no. 6401.0.60.002).
2.5 The ABS has conducted an empirical assessment of the proposed change to annually re-weight the CPI EC level weights. Experimental HFCE price indexes were produced between 2005 and 2015 to compare the annually re-weighted series with the existing CPI series. The results revealed that the experimental HFCE series reported lower average annual household inflation measures relative to the CPI. This supported the theory that higher frequency (annual) re-weighting at the EC level captures a greater amount of consumer substitution when compared to the current CPI (six yearly) re-weighting process.
3.1 The ABS has undertaken broad consultation regarding the proposal and methods to annually re-weight the CPI. The method to use HFCE data for CPI weighting purposes underwent an external review by Mr Paul McCarthy, an international Price Statistics and National Accounts expert. Following the release of the paper in 2016, the ABS sought the views of the Australian community through a call for public submissions, which occurred between July and November 2016. Several submissions were received during the consultation period.
3.2 In addition to the call for public submissions, the ABS conducted numerous bilateral and multilateral consultations with key stakeholders, including: the Reserve Bank of Australia; the Treasury; Department of Social Services; Department of Finance; and State Treasuries.
3.3 Stakeholders and public submissions were supportive of the proposal and methods outlined to annually re-weight the Australian CPI.
3.4 Consultation with key stakeholders raised additional topics of further research for the ABS to consider. These topics include: (i) the possibility of more frequently updating the weights of the Selected Living Cost Indexes (SLCIs)(footnote 1) ; and (ii) the ABS to document methods to calculate contributions to percentage change with annually re-weighted indexes.
3.5 As a result of the feedback received, the ABS has conducted research into methods to calculate contributions to change with annually re-weighted indexes. This information can be found in the Appendix.
3.6 In coming months, the ABS will also conduct further research into methods allowing for more frequent re-weighting of the SLCIs. Both theoretical and empirical research will be undertaken with the results to be published following the December quarter 2017 re-weight of the CPI and SLCIs.
4.1 Updated expenditure class level weights will be implemented into the CPI and SLCIs in the December quarter 2017, due for release on 31 January 2018 and 7 February 2018 respectively. The principal source for the updated weights will be the 2015-16 HES data.
4.2 An information paper will be published in early November 2017 containing the new weights. In addition to this, the ABS will construct a retrospective superlative Fisher-type(footnote 2) index between 2011 and 2017 to estimate the amount of upper level substitution bias in the CPI.
4.3 Following this, the EC level weights in the CPI will be updated annually each December quarter. The primary data source for updating the weights for the inter-HES years will be HFCE data from the National Accounts. The December quarter 2018 will be the first instance where HFCE data is used as the principal data source for the CPI re-weight. The ABS will continue to use HES as the primary data source to re-weight the CPI for the years where it is available.
1 HFCE data is not available for different household groups. Therefore, the information paper Increasing the Frequency of CPI Expenditure Class Weight Updates (cat. no. 6401.0.60.002) proposed to continue to update the SLCI weights using the six yearly HES data. <back
2 See detailed information on index theory and aggregation in chapter 4 Price index theory of the CPI Concepts, Sources and Methods (cat. no. 6461.0). <back
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