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6470.0 - Information Paper: Introduction of the 16th Series Australian Consumer Price Index, 2011  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 22/09/2011  First Issue
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CHAPTER 1: BACKGROUND

1.1 The Australian Bureau of Statistics (ABS) first compiled the CPI in 1960 with series extending back to the September quarter 1948. Prior to introducing the CPI, the ABS and its predecessor agency, the Commonwealth Bureau of Census and Statistics, produced a number of discrete retail price indexes, each constructed with fixed quantity weights but spanning different lengths of time from 1901 to 1960 – see Australian Consumer Price Index: Concepts, Sources and Methods, 2009 (cat. no. 6461.0) for more detail. The introduction of the CPI heralded a different approach to constructing price indexes. Rather than compiling a set of discrete fixed–weighted indexes, the objective became to produce a series of short–term fixed–weighted indexes that were to be regularly linked together to provide a single continuous measure of price change. This strategy was adopted to ensure that, at any point in time, the weighting patterns and item coverage of the CPI were relevant to user requirements and reflected contemporary economic conditions as well as possible. As a result, the ABS has maintained a program of periodic reviews of the CPI to ensure that it continues to meet community needs.

1.2 The most important objective of these reviews is to update the CPI weighting patterns, which represent the average Australian household expenditure on goods and services. When analysing a new set of CPI weights compared with the previous set, it is important to note that the weights are relative to each other rather than being absolute. As a result, the weight of a product could fall, for example, even though the expenditure per household on the product has increased because the increase is less than the average increase for all products. Products in the CPI include both goods and services purchased by households.

1.3 The ABS classifies CPI reviews as either 'major' or 'minor' depending on the issues being considered during a particular review. In general, a minor review is restricted mainly to updating the weighting patterns in the CPI. As well as updating the weights, a major review involves examining the structure and purpose of the CPI, its underlying classification and its commodity coverage.

1.4 The 16th series CPI review was a major review and considered issues such as the principal purpose of the CPI, compilation frequency and an evaluation of the deposit and loans facilities index. For a detailed account of the issues which were considered during this review, refer to Information Paper: Issues to be considered during the 16th Series Australian Consumer Price Index Review, Australia, December 2009 (cat. no. 6468.0).

1.5 The outcomes of the 16th series review were released in December 2010 and presented in the Information Paper: Outcome of the 16th Series Australian Consumer Price Index Review, Australia, December 2010 (cat. no. 6469.0).

1.6 Some of the major decisions that emerged from the 16th series review were:

  • The principal purpose of the CPI is household inflation measurement and the acquisitions approach will remain the conceptual basis for compiling the CPI. Consistent with maintaining this conceptual basis, the price of owner–occupied housing (OOH) will continue to be measured as the change in the price of gross fixed capital formation (GFCF) of houses, net of land. A weighting pattern representative of all private households in the eight capital cities will continue to be used.
  • The ABS will change its measurement of financial services in the CPI to ensure that this component of the CPI is of high quality. The deposit and loan facilities (indirect charges) will be removed from the headline CPI from the September quarter 2011 until such time that methods and data sources are sufficiently robust for reintroduction to the CPI. The deposit and loan facilities index will comprise direct fees and charges only and will be renamed 'Deposit and loan facilities (direct charges)’. A new analytical series, comprising the ‘All groups CPI including deposit and loan facilities (indirect charges)’ will be published in the quarterly CPI publication from the September quarter 2011 issue.

  • The ABS will publish a range of additional analytical measures of inflation from the September quarter 2011 including ‘All groups CPI, excluding food and energy’ and ‘All groups CPI, seasonally adjusted’.
  • The review also noted that there was significant demand for a monthly CPI and a four yearly Household Expenditure Survey (HES). However, additional funding will be required to meet the costs involved in these changes. With current resources, the ABS will continue to publish a quarterly CPI released on the fourth Wednesday after the end of the reference period, and the HES will remain on a six yearly frequency.

1.7 This information paper provides details of the new CPI commodity classification and weighting pattern. A mock–up of the revised format of the September quarter 2011 issue of Consumer Price Index, Australia (cat. no. 6401.0) which will be released on 26 October 2011, is reproduced as Appendix 5 (available to download on the ABS website www.abs.gov.au ), to provide users with advance notice of the changes that will be incorporated.

1.8 A Guide to the Consumer Price Index: 16th Series (cat. no. 6440.0) and Consumer Price Index: Correspondence with Household Expenditure Classification (cat. no. 6446.0.55.001) will also be released on 26 October 2011.

1.9 Associated with this Information paper are two data cubes available on the ABS web site: Consumer Price Index: 16th Series Weighting Pattern, 2011 (cat. no. 6471.0) which contains the 16th series weights and points contribution as well as the 16th series average weekly expenditures; and Analytical Living Cost Indexes and Pensioner Beneficiary Living Cost Index: 16th series Weighting Patterns, 2011 (cat. no. 6472.0) which contains the 16th series weights and average weekly expenditure for the four types of household: Employee, Age pensioner, Other government transfer recipient and Self–funded retiree. It also contains the 16th series weights and average weekly expenditure for the Pensioner and Beneficiary Living Cost Index, which combines the Age pensioner and Other government transfer recipient households.

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