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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 2: KEY CHANGES IN THE 16TH SERIES CPI

Summary
2.1 The 16th series CPI includes a number of updates which will be incorporated from the September quarter 2011. The 16th series CPI will be linked to previous CPI series providing a continuous measure of price change since 1948. The All groups CPI will not be revised as a result of the updates. The key changes for the 16th series CPI are:

  • the CPI commodity classification (CPICC) used to categorise the goods and services in the CPI will be updated to ensure it reflects contemporary wording and groupings. To enable greater international comparability, the classification will be aligned with the United Nations Classification of Individual Consumption according to Purpose (COICOP) where possible. There will be considerable re–naming and some re–ordering of the items in the classification. The coverage of household expenditure will remain largely the same as the 15th series CPI, with two exceptions:
    • the indirectly measured component of the ‘Deposit and loan facilities’ index will be removed from the headline CPI with direct fees and charges remaining;
    • the ‘Motor vehicles’ expenditure class will incorporate new cars, transfer of used cars to the household sector (from business or government) and the service fee for the transfer of second hand cars. This is a change from the 15th series which only included the purchase of new cars.

  • new household expenditure weights will be derived from the 2009–10 Household Expenditure Survey (HES) and other data sources;
  • an additional number of analytical measures of inflation will be produced:
    • All groups CPI, seasonally adjusted, weighted average of eight capital cities;
    • Expenditure class level price indexes seasonally adjusted, weighted average of eight capital cities;
    • All groups CPI including deposit and loan facilities (indirect charges); and
    • All groups CPI excluding food and energy.

  • the analytical measures of trend inflation, the Trimmed mean and Weighted median, will be revised and calculated using the standard ABS seasonal adjustment methodology.

The 16th series commodity classification
2.2 The introduction of the 16th series has provided the opportunity to review and update the CPI commodity classification used to categorise the goods and services acquired by households. The new 16th series commodity classification and changes from the 15th series are shown in Appendix 1. Tables showing correspondences between the 15th and 16th series commodity classification can be found in Consumer Price Index: Commodity Classification, Australia, 16th series, 2011 (cat. no. 6401.0.55.004) which was released on 4 July, 2011. In reviewing the classification, issues considered included user needs, consumer behaviour and international comparability. Items with relatively low weight such as 'Men's outerwear' and 'Men's underwear, nightwear and socks' have been combined into 'Garments for men'. To enable greater international comparability of price inflation, a review was undertaken to align where possible the CPI commodity classification (CPICC) with the United Nations Classification of Individual Consumption according to Purpose (COICOP).

2.3 As a result of the review, there has been considerable re–naming and some re–ordering of the items in the classification. Where changes to the CPI classification are indicated, they are one of the following types described below.

New series
2.4 Some new series will be formed from splitting and/or combining existing series (e.g. the 15th series expenditure classes 'Pork' and 'Bacon and ham' will be combined into the 16th series expenditure class 'Pork'). Where a new series is created from a combination of two or more previously published series, a back series will be calculated as far back as possible, based on available data.

2.5 For the new expenditure class 'Deposit and loan facilities (direct charges)' the ABS does not have back data and the series will begin with an index reference period of June quarter 2011 = 100.0

Series continuing, minor compositional change
2.6 Some series will have a small change to composition such as the removal of a small component (e.g. the ‘stationery’ component of the 15th series expenditure class 'Audio, visual and media services' will move to the 16th series expenditure class 'Newspapers, magazines and stationery'). A back series will be calculated as far back as possible, based on available data.

Series continuing, name change or move in the classification order
2.7 Some series will be renamed and/or moved in the 16th series classification. The 15th series expenditure class 'Tea, coffee and food drinks' has no composition changes but has been renamed 'Coffee, tea and cocoa' in the 16th series. The 15th series expenditure class 'House purchase' has been renamed 'New dwelling purchase by owner–occupiers' in the 16th series. The series will be linked to the 15th series equivalent.

Discontinued series
2.8 Some series will no longer be available in the 16th series. The 15th series expenditure class 'Deposit and loan facilities' will be discontinued but partly replaced by a new expenditure class 'Deposit and loan facilities (direct charges)' which will begin with an index reference period of June quarter 2011 = 100.0.

The 16th series analytical series
2.9 Analytical series weights will be updated to reflect the 16th series expenditure patterns. A description of the analytical series will be included in the Explanatory notes of the September quarter 2011 issue of Consumer Price Index, Australia (cat. no. 6401.0) and is also included in the mock–up of the revised format of the publication
(see Appendix 5, available to download on the ABS website www.abs.gov.au ).

2.10 An additional number of analytical measures of inflation will be produced:

  • All groups CPI, seasonally adjusted, weighted average of eight capital cities;
  • Expenditure class level price indexes seasonally adjusted, weighted average of eight capital cities;
  • All groups CPI including deposit and loan facilities (indirect charges) with a time series back to the September quarter 2005; and
  • All groups CPI excluding food and energy with a time series back to the September quarter 1989.

2.11 The ABS will be improving the seasonal adjustment of the underlying trend indexes (the Trimmed mean and Weighted median) from the September quarter 2011 by adjusting for seasonality in the prices of a wider range of goods and services than had previously occurred. A new index, ‘All groups CPI, seasonally adjusted’ as well as the seasonally adjusted expenditure classes will be available from the September quarter 2011. For more information on seasonal adjustment please refer to Information Paper: Seasonal adjustment of Consumer Price Indexes, 2011, (cat. no. 6401.0.55.003).

2.12 The Tradable and Non–tradable series classification was reviewed and updated for the 16th series using data from the National Accounts Input–Output Tables 2006–07. There were five changes of classification:
  • ‘Cakes and biscuits’ and ‘Jams, honey and spreads’ were reclassified from non–tradable to tradable;
  • ‘Waters, soft drinks and juices’, ‘Newspapers, magazines and stationery’ and ‘Pets and related products’ were reclassified from tradable to non–tradable.

2.13 The series will be renamed ‘International Trade Exposure, Tradables and Non–tradables’. The updated classification will be available in Appendix 1 of the September quarter 2011 issue of Consumer Price Index, Australia (cat. no. 6401.0) and is included in the mock–up of the revised format of the publication in Appendix 5 (available to download on the ABS website www.abs.gov.au ).

2.14 The Special series and Analytical series will be combined in one table (Table 8 – Analytical series, weighted average of eight capital cities) of Consumer Price Index: Australia (cat. no. 6401.0). As a result, there will be changes to some other table numbers, for example, the International comparisons series will be available in Tables 9 and 10 – see Contents (page iii) for details.

Changes to the measurement of financial services

2.15 The ‘Deposit and loan facilities’ index in the CPI measures changes in the price of banking services provided to households and was implemented as part of the 15th series CPI in 2005. Volatility in the index during the global financial crisis (GFC) prompted concerns from users about the behaviour of the index, which led to a reassessment of the ‘Deposit and loan facilities’ index during the 16th series CPI review. The review concluded that while, conceptually, both direct and indirect fees for deposit and loan facilities should be included in the CPI, the GFC demonstrated that the methodology used in the Australian CPI and more widely in the National Accounts of many countries, to calculate indirect fees needed further refinement. ‘Deposit and loan facilities (indirect charges)’ will be re–introduced into the headline CPI when the ABS is satisfied that the methodology and source data are sufficiently robust to produce high quality estimates. This will include consideration of international efforts to improve measurement.

2.16 The measurement of financial services in the CPI will therefore change in the 16th series CPI, commencing from the September quarter 2011. This is to ensure that this component of the CPI is transparent and reliably measured. The changes are as follows:
  • the indirectly measured component of the ‘Deposit and loan facilities’ index will be removed from the headline CPI;
  • the ‘Deposit and loan facilities’ index will comprise direct fees and charges only and will be renamed ‘Deposit and loan facilities (direct charges)’;and
  • a new analytical series, comprising the ‘All groups CPI including deposit and loan facilities (indirect charges)’ will be published quarterly from the commencement of the 16th series CPI.

Deposit and loan facilities (direct charges)
2.17 ‘Deposit and loan facilities (direct charges)’ will contain a range of financial transactions used by households including fees for internet transactions, charges for using Automatic Teller Machines (ATMs), credit card fees and overdraft charges. Each month the price, terms and conditions for a representative range of banking products (e.g. home loan, etc.) will be obtained. The exception is establishment fees on home loans, which will be calculated by deriving an average price from loan approval counts and total revenue. In the case of percentage fees, such as foreign currency conversion fees, these will be applied to a sample of real average transaction dollar amounts. This sample of transactions, moved forward by the four–quarter moving average of the CPI, will be updated on an annual basis. Detailed information on the 'Financial services' index in the 16th series CPI is contained in Appendix 4.

Deposit and loan facilities (indirect charges)
2.18 The methodology for measuring the price of indirect charges will be refined for the analytical series, informed by international developments. The ABS has made some improvements to the measurement of this index:

  • The weights of the sample of individual banking products priced in the ‘Deposit and loan facilities (indirect charges)’ index have been updated. Low level weight updating (below expenditure class level) is common practice in the CPI. This will improve the accuracy and reduce the volatility of the series.
  • Research by the ABS has found that an accurate index can only be assured if the data are disaggregated to the finest level of detail. Consequently the ABS has worked with the data providers to obtain the high quality, detailed data necessary to measure indirect fees robustly. This work is ongoing. Currently the data provided contains disaggregation ranging from around 150 to around 600 banking products per institution. Regular negotiations are taking place to maintain the quality, detail and consistency of the data. Detailed information on the ‘Financial services’ index in the 16th series CPI is contained in Appendix 4.

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