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Price impacts on the living costs of selected Australian household types
The indexes have been constructed to cover the period from June quarter 1998 up to and including the June quarter 2003.
The estimated number of households in each of these household types and their relative significance based on the 1998-99 HES is shown in table 28.6.
These indexes represent the conceptually preferred measures for assessing the impact of changes in prices on the disposable incomes of households. In other words, these indexes are particularly suited for assessing whether or not the disposable incomes of households have kept pace with price changes. The CPI, on the other hand, is designed specifically to measure price inflation for the household sector as a whole and, as such, is not the conceptually ideal measure for assessing the impact of price changes on the disposable incomes of households.
Background and methodology
The differences between indexes designed to measure price inflation and indexes designed to measure changes in living costs lie only in the item coverage. The items included in the living cost indexes are determined by reference to all the amounts actually paid by households to gain access to consumer goods and services, while the item coverage of inflation indexes is defined as all those goods and services actually acquired by households in monetary transactions.
The most notable differences are that living cost indexes include interest charges but do not include house purchases, while inflation indexes do not include interest charges but do include house purchases. Insurance (other than health insurance) is also treated differently in the living cost indexes. The weight for insurance in the CPI relates to the net value of the service provided by the insurance company (the amount of premiums paid by households less the amounts reimbursed by way of claims). In the living cost indexes, the weight relates to the gross value of insurance premiums paid by households.
For more detail on the methodology used to construct these indexes, see the article Analytical indexes measuring the price impacts on the living costs of selected Australian household types in Year Book Australia 2002.
The index series and quarterly percentage changes for the various household types from June quarter 1998 to June quarter 2003 are shown in graphs 28.7 and 28.8 respectively. The average annual indexes and percentage changes are shown in table 28.9.
Between 2001-02 and 2002-03, changes in living costs were similar across the population subgroups ranging from a low of 3.1% for other government transfer recipient households to a high of 3.3% for self-funded retiree households. This contrasts with the range of changes between 2000-01 and 2001-02 when employee households showed the lowest increase (2.1%) and age pensioner households showed the highest increase (3.3%).
Between 1998-99 and 2002-03 the increases in the population subgroup indexes ranged from 14.3% for employee households to 15.3% for age pensioner households. The increase in the CPI over the same period was 15.1%.
These analytical indexes have been designed specifically to answer the question:
The key issues these indexes can address are whether there are significant differences in the living cost experiences among household types and whether the CPI is an adequate proxy for changes in living costs.
In previous studies it was concluded that changes in living costs had been broadly similar across the different household types. The extension of the analysis to June quarter 2003 is generally consistent with those earlier conclusions, although perceptions as to what are significant differences may vary between analysts. Further, it could be argued that the CPI provides a reasonable estimate of changes in living costs for each of the selected household types over this period.
In considering these results it is important to recognise that these indexes have been constructed to reflect the experiences of population groups as a whole, and they may not reflect the experiences of any individual household. In this regard it is particularly important to note that no such index can be expected to reflect the changes in living costs experienced by households as a direct consequence of their moving through the life cycle (e.g. as a result of family formation and ageing). However, it would be reasonable to say that these indexes do provide reliable estimates of the change in living costs of households at an equivalent point in the life cycle during each period.
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