An Update on the Annual Re-weighting of the Australian CPI and Living Cost Indexes

By Arnold Akem, Economic Research Section

SUMMARY

The Australian Bureau of Statistics (ABS) has maintained a program of periodic reviews of the Consumer Price Index (CPI) and Selected Living Cost Indexes (SLCIs) every six years, to ensure that they continue to meet community needs. The ABS conducted the most recent of these reviews in December quarter 2017 (ABS, 2017b).

In 2016, as part of the program to enhance the Australian CPI (ABS, 2015b), the ABS investigated the frequency of the CPI and SLCIs expenditure class (EC) weight updates. A feasibility study was conducted using Household Final Consumption Expenditure (HFCE) data from the National Accounts to annually update the CPI EC weights. The findings from this work showed that more frequent weight updates using HFCE data reduces substitution bias in the Australian CPI (ABS, 2016).

Following extensive consultation with key stakeholders, as well as peer review of methods and data sources by Prices and National Accounts experts, the ABS announced stakeholder support for the annual re-weight of the CPI and the intention to implement these new methods and data sources from the December quarter 2018.

The consultation also identified further topics for ABS investigation. These topics included: methods to more frequently re-weight the SLCIs; and providing methodological clarity for the calculation of CPI capital city weights in between the Household Expenditure Survey (HES) years (ABS, 2017a).

The ABS has now completed these investigations. The ABS is now in a position to update users of the CPI and SLCIs on the following:

  • Annual re-weighting of the SLCIs using HFCE data.
  • Methods to calculate the capital city EC weights for the inter-HES years.

The methods presented in this paper will be implemented in the December quarter 2018 for both the SLCIs and the CPI.


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