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Consumer Price Index FAQs
 

ABOUT THE CPI
Q. What is a Consumer Price Index (CPI)?
Q. How can I find the CPI data?
Q. How is the CPI used?
Q. When was the CPI first produced in Australia?
Q. Why doesn't the CPI reflect the prices I see?
Q. What geographic regions does the CPI cover?

COST OF LIVING
Q. Is the CPI the best measure of inflation?
Q. Is the CPI a cost of living index?
Q. What was the change to the Australian CPI principal purpose in 1998?
Q. What are the Selected Living Cost Indexes (SLCIs) and how do they compare with the CPI?

CPI CONSTRUCTION
Q. How is the CPI basket determined?
Q. What goods and services does the CPI cover?
Q. How and where are CPI prices collected?
Q. How is the CPI calculated?
Q. How is the CPI reviewed?
Q. Why are there quality adjustments in the CPI?
Q. How are taxes treated in the CPI?
Q. How are subsidies treated in the CPI?

INTERPRETING CPI RESULTS
Q. How do I read or interpret a price index?
Q. How can I use a price index to calculate the change in prices between any two points in time?
Q. How do I calculate changes in the CPI between calendar or financial years?
Q. What index should I use for contract escalation?
Q. Can I compare price levels using price indexes?
Q. Why doesn’t the ABS adjust the CPI when there are one–off price spikes (like bananas, or introduction of the GST)?

ANALYTICAL MEASURES OF INFLATION
Q. Is the CPI seasonally adjusted?
Q. What is the difference between the "headline inflation" and the "underlying inflation" reported in the media?

FURTHER INFORMATION
Q. The ABS previously published average retail prices for selected items for each capital city. Why are they no longer available?
Q. What information is published with the CPI?
Q. What if I want more detailed information?
Q. What are some limitations of the CPI?
Q. Will the CPI be updated in the future?
Q. How can I get information on the CPI?

INTRODUCTION OF CARBON PRICING
Q. Does the ABS produce a carbon exclusive Consumer Price Index (CPI) and/or Living Cost Indexes?
Q. How was the carbon price reflected in the CPI and/or Living Cost Indexes?
Q. When was the carbon price introduced and when did this impact on the prices measured in ABS statistics?
Q. Was the introduction of the carbon price a one-off impact on the CPI and/or Living Cost Indexes?
Q. What industries were affected by the carbon price?
Q. Was the carbon price treated differently to the Goods and Services Tax (GST) in the CPI?


ABOUT THE CPI

Q. What is a Consumer Price Index (CPI)?

A. A CPI is a measure of the average change over time in the prices paid by households for a fixed basket of goods and services.

In Australia, the CPI measures the changes in the price of a fixed basket of goods and services, acquired by household consumers who are resident in the eight State/Territory capital cities.

A general overview of the CPI is available in A Guide to the Consumer Price Index: 16th Series, 2011 (cat. no. 6440.0), section 2 "What is the CPI?”. More detailed information is available in Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 2 "Purpose and uses of Consumer Price Indexes".

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Q. How can I find the CPI data?

A. The headline CPI numbers, percentage change from the previous quarter, and percentage change from corresponding quarter of the previous year, for the weighted average of eight capital cities can be found in the Main Features, Consumer Price Index, Australia (cat. no. 6401.0). The CPI numbers and percentage changes for each capital city for the latest and previous quarters can be found in the Selected Tables – Capital Cities, Consumer Price Index, Australia (cat. no. 6401.0).

The Downloads tab, Consumer Price Index, Australia (cat. no. 6401.0) contains price indexes for each State and Territory capital city and more detailed product details, their percentage changes, and the relative contribution of these indexes to the change in the All Groups indexes. These detailed tables are available as Microsoft Excel time series spreadsheets, and summarised in the Adobe Acrobat pdf file.
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Q. How is the CPI used?

A. The CPI affects almost all Australians because of the many ways it is used. It is primarily used as a macro–economic indicator by the government and economists to monitor and evaluate levels of inflation in the Australian economy, and for adjusting dollar values of types of fixed payments, such as pensions and contracts.

A general overview of the CPI and its uses is available in A Guide to the Consumer Price Index: 16th Series, 2011 (cat. no. 6440.0), section 2 "What is the CPI?”.
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Q. When was the CPI first produced in Australia?

A. The CPI was first compiled in 1960 with series extending back to the September quarter 1948. The CPI was preceded by five series of retail price indexes compiled by the (then) Commonwealth Bureau of Census and Statistics as far back as 1901. These series were titled the A, B, C, and D Series, and the Interim Retail Price Index respectively. The C Series Index, which began in 1921, was the principal retail price index in Australia prior to the introduction of the CPI in 1960.

The introduction of the CPI heralded a change in the approach to measuring retail price movements. 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. The CPI now comprises sixteen linked indexes. The CPI originally consisted of weights from 1948. Weights were updated in 1952 and subsequently in 1956, 1960, 1963, 1968, 1973, 1974, 1976, 1982, 1987, 1992, 1998, 2000, 2005 and 2011.

For the 13th series CPI in 1998 it was decided that the CPI would change from a measure of the change in living costs of employee households to a general measure of price inflation for the household sector. Consequently the population coverage was expanded from wage and salary earner households to include all metropolitan households.
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Q. Why doesn't the CPI reflect the prices I see?

A. The CPI measures the changes in price of a fixed basket of goods and services based on average household expenditure by capital city households across Australia, not of any specific family or individual. For example, it includes both rental and owner–occupier house purchase costs in the basket, which is impossible for a single household. It is unlikely that any individual experience will correspond precisely with either the national index or the indexes for specific capital cities.

More information is available in Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 5 "Coverage and classifications".
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Q. What geographic regions does the CPI cover?

A. Indexes are published for each of the eight State and Territory capital cities as defined by the Capital City Statistical Division in the Australian Standard Geographic Classification (ASGC), and for the weighted average of the eight capital cities.

For more information, refer to product Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 5 "Coverage and classifications", or the Australian Standard Geographical Classification (ASGC), July 2011 (cat. no. 1216.0).
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COST OF LIVING

Q. Is the CPI the best measure of inflation?

A. There is no single best measure of inflation. Ideally, such an indicator would be comprehensive and cover price changes for all goods and services traded in the economy. However, different measures of price change are suited to analysing different parts of the economy, so the best approach depends on how the data is going to be used.

The ABS produces a range of price indexes, suited to different parts of the economy. For example:
  • the Consumer Price Index (CPI) is the most comprehensive measure of goods and services price inflation faced by all consumer households;
  • the Selected Living Cost Indexes (SLCIs) are designed to measure changes in living costs for selected population sub–groups. They are particularly suited for assessing whether or not the disposable incomes of households have kept pace with price changes.
  • the Producer Price Index (PPI) measures inflation of products either as they leave the place of production or as they enter the production process;
  • the Wage Price Index (WPI) measures changes in the price of labour in the Australian labour market, and
  • the Domestic Final Demand (DFD) is used as a measure of inflation experienced by consumers, governments and other domestic institutions.

The Australian CPI is measured on an acquisitions approach. This approach is considered to be the most suitable approach when the primary purpose of the CPI is as a macro–economic indicator of price inflation affecting households.

For more information about direct and derived measures of price change, refer to Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 14 "The system of price statistics".

To demonstrate how various price indexes can be used, refer to Stability in the A resilient economy section of the Economy chapter in Measures of Australia's Progress, 2010 (cat. no. 1370.0),
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Q. Is the CPI a cost of living index?

A. The CPI frequently is called a cost of living index, but it differs in important ways from a complete cost–of–living measure. Both the CPI and a cost of living index measure the changes in prices of goods and services that are purchased by households. The Australian CPI measures the changes in price of a fixed basket of goods and services whereas a cost of living index measures the change in the minimum expenditure needed to maintain a certain standard of living.

In practice, no statistical agencies compile true cost of living or purchasing power measures as it is too difficult to do. A cost of living index requires access to both price and current household consumption each period as well as an assessment of households' welfare which depends on a variety of physical and social factors that have no connection with prices.

As the CPI is intended to measure the overall inflation in prices of goods and services acquired by Australian households, it is used as a proxy measure of cost of living or purchasing power.

More information is available in Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 4 "Price Index Theory".
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Q. What was the change to the Australian CPI principal purpose in 1998?

A. The Australian CPI is an important economic indicator. It measures price changes facing households. It is compiled according to international standards, and is based on robust data collection and compilation methodologies.

Prior to the September quarter 1998, the CPI was compiled primarily to be used for income adjustment through wage indexation. This had implications for the coverage and design of the index. It was limited to the expenditures made by households whose principal source of income was wages. It measured out–of–pocket living expenses, including mortgage interest payments.

Since the September quarter 1998, the principal purpose of the CPI has been to measure inflation faced by households to support macro–economic policy decision making. The CPI covers the expenditures of all households (not just those whose principal source of income was wages, as was the case before 1998) and measures the changes in the prices of a fixed basket of goods and services acquired each period.

In recognition of the interest in the extent to which the impact of price change varies across different groups in the community, in addition to the CPI, the ABS compiles Selected Living Cost Indexes, Australia (cat. no. 6467.0) (SLCIs).

The SLCIs measure out–of–pocket living expenses incurred by selected population sub–groups of Australian households. The most notable difference between these indexes and the CPI is that the living cost indexes include interest charges but do not include new house purchases, while the CPI includes new house purchases but does not include interest charges. For more information refer to the Explanatory Notes within the Selected Living Cost Indexes, Australia (cat. no. 6467.0) .

The ABS compiles the CPI and a range of other indexes according to agreed standards and to high quality. The CPI is used for a variety of purposes. The ABS provides explanations of the principle purpose and the concepts, sources and methods used in compiling the CPI and other indexes. Based on this information, it is up to users to determine which index is the best to use. The ABS neither endorses nor discourages these choices.

More information regarding the reasons for the change to the CPI is available in Information Paper: Outcome of the 13th Series Australian Consumer Price Index Review, 1997 (cat. no. 6453.0).
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Q. What are the Selected Living Cost Indexes (SLCIs) and how do they compare with the CPI?

A.As a single index cannot be expected to adequately fulfil all purposes, and in recognition of the widespread interest in the extent to which the impact of price change varies across different groups in the community, the ABS compiles and publishes Selected Living Cost Indexes, Australia (cat. no. 6467.0), specifically designed to measure changes in living costs for selected population sub–groups. They are particularly suited for assessing whether or not the disposable incomes of households have kept pace with price changes. The employee households living cost index is calculated on a similar basis as the CPI prior to the September quarter 1998.

The SLCIs are constructed using the "Outlays method" which measures changes in the prices of goods or services for which payments were made to gain access to goods and services i.e. the purchasing power of the after–tax incomes of households. It is therefore concerned with measuring the impact of changes in prices on the out–of–pocket expenses incurred by households to gain access to consumer goods and services.

In contrast, the CPI uses the "Acquisitions method" which measures changes in the prices of goods and services acquired (actually received). As such, it is designed to measure price inflation for the household sector as a whole.

In practice, for most goods and services purchased by the reference population, outlays and acquisitions occur within a relatively short space of time, leading to no difference in methodology. However, there are three areas of expenditure in which these conceptual approaches provide significantly different results: purchase of dwellings, purchase of durable items and financial services and the use of credit. The most notable differences caused by this are that living cost indexes include interest charges but do not include new house purchases, while the CPI includes new house purchases but does not include interest charges. For more information refer to the Explanatory Notes within the Selected Living Cost Indexes, Australia (cat. no. 6467.0) .

Households have been categorised based on the principal source of household income, derived from the 2009–10 Household Expenditure Survey (HES). The four household types in scope of the HES account for just over 90% of Australian households. The four household types that have been identified as being appropriate for the construction of these indexes, are:
  • Employee households (i.e. those households whose principal source of income is from wages and salaries);
  • Age pensioner households (i.e. those households whose principal source of income is the age pension or veterans affairs pension);
  • Other government transfer recipient households (i.e. those households whose principal source of income is a government pension or benefit other than the age pension or veterans affairs pension) and,
  • Self–funded retiree households (i.e. those households whose principal source of income is superannuation or property income and where the HES defined reference person is ‘retired’ (not in the labour force and over 55 years of age).

For the latest statistics on living cost indexes, refer to the product Selected Living Cost Indexes, Australia (cat. no. 6467.0).
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CPI CONSTRUCTION

Q. How is the CPI basket determined?

A.
The CPI basket is based on actual household expenditure data, which is principally derived from the HES conducted by the ABS. The HES collects detailed information about the expenditure, income, assets, liabilities and household characteristics from a sample of over 9,500 households resident in private dwellings in the eight capital cities.

In addition to the HES, market expenditure and sales data is routinely monitored and applied to ensure the price samples continue to be representative below the published level of data.

For more information, refer to Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 6 "Weights and their sources", and Consumer Price Index: Correspondence with 2009–10 Household Expenditure Classification, Australia, 2011 (cat. no. 6446.0.55.001)

For information on the HES, refer to Household Expenditure Survey, Australia: Summary of Results, 2009–10 (cat. no. 6530.0).
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Q. What goods and services does the CPI cover?

A. The basket contains representative items actually acquired by households. The actual items priced for the CPI basket are determined based on a number of factors. Items:
  • must be representative of purchases made by households;
  • must have specifically identifiable characteristics that can be observed each period to price to constant quality (e.g. a 420g can of baked beans, or adult general admission to a football game); and
  • may be those that some people would exclude on moral or social judgements, for example, tobacco and alcohol products will be included in the basket even though many households may never purchase them.

For practical reasons, the basket cannot include every item bought by households, but those it does include are carefully selected to represent the range of goods and services actually acquired by households. Selection is made only after obtaining detailed information about the buying habits of households, such as varieties and brands. The items selected should be representative, so that the index will reflect the price changes for a much wider range of goods and services than is actually priced.

Typical examples of the types of goods and services represented in the basket can be found in A Guide to the Consumer Price Index: 16th Series, 2011 (cat. no. 6440.0), Appendix 2 "Types of goods and services priced in the 16th Series CPI".

For more information, refer to Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 5 "Coverage and classifications", and Chapter 7 "Sampling".
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Q. How and where are CPI prices collected?

A. The collection of prices in each capital city is largely carried out by trained field staff operating out of the various State and Territory offices of the ABS, while some prices are collected as administrative datasets or special surveys.

Prices are collected in the same kinds of retail outlets, and other places, where householders purchase their goods and services. For each item selected for pricing, the main types of outlets from which households buy the items need to be identified so that a representative sample of these outlets can be selected. Examples of these outlets include supermarkets, department stores, hotels, motor vehicle dealerships, schools, child care centres and on–line websites.

The prices used in the CPI are those that any member of the public would have to pay to purchase the specified good or service. Any taxes levied on goods or services (such as the GST) are included in the CPI price. Similarly, prices are adjusted by any subsidy or assistance provided directly by government (e.g. Child Care Benefit, Medicare). Sale prices, discount prices and 'specials' are reflected in the CPI so long as the items concerned are of normal quality (i.e. not damaged or shopsoiled), and are offered for sale in reasonable quantities. Any concessions available to particular groups of the population (such as age pensioners) are also taken into account where significant. Where an item is priced over the internet, any delivery or processing charges payable are included in the price.

The frequency of price collection by item varies as necessary to obtain reliable price measures. Prices of some items are volatile (i.e. their prices may vary many times each quarter) and for these prices frequent price observations are necessary to estimate a reliable average quarterly price. Each month prices are collected at regular intervals for goods such as petrol, fresh meat, fruit and vegetables, domestic and overseas airline tickets and telephone and internet services.

For most other items price volatility is not a problem and prices are collected once a quarter. There are a few items where prices are changed at infrequent intervals, for example education services where prices are set once a year. In these cases the frequency of price collection is modified accordingly.

For more information, refer to Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 7 "Sampling", Chapter 8 "Price collection", and Chapter 10 "Consumer Price Index calculation in practice".
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Q. How is the CPI calculated?

A. The ABS invests considerable effort to ensure the quality of the CPI. Each quarter, approximately 100,000 prices are obtained by field officers and other sources for a representative range of goods and services that Australian households acquire. The changes in price of these goods and services are combined with actual expenditure data of Australian households to calculate the overall price change in the quarter.

For more information, refer to A Guide to the Consumer Price Index: 16th Series, 2011(cat. no. 6440.0) Chapter 4, 'Calculating the CPI'.
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Q. How is the CPI reviewed?

A. Like any other long–standing and important statistical series, the CPI is reviewed and updated from time to time to ensure that it continues to meet community needs. The timing of these reviews is generally linked to the results from the Household Expenditure Survey, Australia, Summary of Results (cat. no. 6530.0), which collects information about the expenditures of approximately 9,500 metropolitan households. An important objective of these reviews is to update the weights in the CPI to reflect the goods and services purchased by Australian households. They also provide an opportunity to reassess the scope and coverage of the index and other methodological issues.

The last major review was undertaken in 2010 and the ABS implemented the recommendations in the 16th series CPI in respect of the September quarter 2011 issue. For further information regarding the changes in the 16th series refer to: Information paper: Introduction of the 16th series Australian Consumer Price Index, 2011 (cat. no. 6470.0).
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Q. Why are there quality adjustments in the CPI?

A. The CPI aims to measure price changes for a fixed basket of goods and services over time. In the real world, however, things don't remain constant – manufacturers and service providers are continually changing their products and services which may result in an improvement or degradation in quality. One challenge in compiling the CPI is to have it only measure any product price change excluding the effects of any quality change. Quality adjustments are the main procedure for ensuring continuity of consistent quality in the basket of goods and services over time.

Examples of changes in quality might include:
  • changes in package size or content of food, such as breakfast cereals;
  • a change in the alcoholic content or size of bottles of spirits;
  • changes to material or detailing of clothing;
  • changes in motoring performance, economy, comfort, safety or durability of motor vehicles; and
  • changes in the frequency of public transport.

For more information on quality adjustments, refer to Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapters 8 "Price Collection" and 9 "Quality change and new products". For more information on interpreting index numbers, refer to A Guide to the Consumer Price Index: 16th Series, 2011 (cat. no. 6440.0), Section 2 "What is the CPI?".
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Q. How are taxes treated in the CPI?

A. The CPI measures changes in final transaction prices actually paid by Australian households. The prices collected in the CPI include taxes where they are tied to the level of consumption of a specific good or service. Examples of taxes which are included in the CPI include:
  • Goods and Services Tax (GST);
  • Excise duty charged on alcohol and tobacco products;
  • Taxes on transfers of goods or services such as stamp duty on the transfer of property are included in 'Other financial services'; and
  • Tariffs on motor vehicles (such as sales and excise taxes).

Local government rates and charges are also included in the Australian CPI as they are examples of inescapable costs associated with home ownership.

For more information, refer to Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 5 "Coverage and classifications".
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Q. How are subsidies treated in the CPI?

A. As with taxes, prices collected in the CPI are adjusted for any subsidy or assistance provided directly by government that are tied to the level of consumption of a specific good or service. Examples of such subsidies include:
  • Child Care Benefit. For more information, refer to Childcare services in the CPI (Appendix) within the Explanatory Notes section of Consumer Price Index, Australia, September 2012 (cat. no. 6401.0);
  • Medicare; and
  • Pharmaceutical Benefits Scheme (PBS).

For more information, refer to Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 5 "Coverage and classifications".
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INTERPRETING CPI RESULTS

Q. How do I read or interpret a price index?

A. A price index is a tool that allows users to calculate movements over time. The indexes show how prices have changed relative to a value of 100.0 in the index reference period. Most of the Consumer Price Indexes have an index reference period of the financial year 2011/12 = 100.0. An index of 110, for example, means there has been a 10 percent increase in price since the index reference period; similarly an index of 90 means a 10 percent decrease since that index reference period. Movements of the index from one date to another can be expressed as either points or percentage changes.

For more information on interpreting index numbers, refer to A Guide to the Consumer Price Index: 16th Series, 2011 (cat. no. 6440.0), Section 3 "Using the CPI".
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Q. How can I use a price index to calculate the change in prices between any two points in time?

A. Movements in prices can be calculated between any two time periods, and expressed as changes in index points or as percentage changes. The change in index points can be calculated by subtracting the two price indexes from the different time periods. The percentage change can be calculated by dividing the change in index points by the earlier time period price index multiplied by 100.

The following example illustrates the method of calculating changes in index points and percentage changes between the June quarter 2012 and June quarter 2013, but can be applied to any two points in time from the same price index series:

All Groups CPI, Weighted average of eight capital cities (2011/12 = 100.0)

June quarter 2012/2013 All Groups CPI
Index number
June quarter 2013
102.8
less June quarter 2012
100.4
Change in index points
2.4
Percentage change
2.4/100.4 x 100 = 2.4% (rounded to 1 decimal place)

Note that the Change in index points and the Percentage change are different measures of change and are usually different - the fact that they are the same in this example is coincidental. For more information on interpreting index numbers, refer to A Guide to the Consumer Price Index: 16th Series, 2011 (cat. no. 6440.0), Section 3 "Using the CPI".
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Q. How do I calculate changes in the CPI between calendar or financial years?

A. Users may want to compare changes in the prices between two periods longer than a quarter, such as between two years. Index numbers for calendar or financial years are calculated as simple (arithmetic) averages of the four quarterly index numbers for the relevant period. Calendar years are calculated as the simple (arithmetic) average of the March, June, September and December quarters for the relevant year. Financial years are calculated as the simple (arithmetic) average of quarters from the September quarter to the June quarter of the financial year. The following example illustrates the method of calculating the change in the financial year index for the All Groups CPI between the financial years 2011/12 and 2012/13:

All Groups CPI, weighted average of eight capital cities (2011/12) = 100.0),

2011/12 All Groups CPI, Financial year 2011/12
Index number
September quarter 2011
99.8
plus December quarter 2011
99.8
plus March quarter 2012
99.9
plus June quarter 2012
100.4
Financial Year 2011/12
399.9/4 = 100.0 (rounded to 1 decimal place)


2012/13 All Groups CPI, Financial year 2012/13
Index number
September quarter 2012
101.8
plus December quarter 2012
102.0
plus March quarter 2013
102.4
plus June quarter 2013
102.8
Financial Year 2012/13
409.0/4 = 102.3 (rounded to 1 decimal place)

The change in index points can be calculated by subtracting the two price indexes from the different time periods. The percentage change can be calculated by dividing the change in index points by the earlier time period price index multiplied by 100.

Index number
Financial Year 2012/13
102.3
less Financial Year 2011/12
100.0
Change in index points
2.3
Percentage change
2.3/100.0 x 100 = 2.3% (rounded to 1 decimal place)

Note that the Change in index points and the Percentage change are different measures of change and are usually different - the fact that they are the same in this example is coincidental. For more information on interpreting index numbers, refer to A Guide to the Consumer Price Index: 16th Series, 2011 (cat. no. 6440.0), Section 3 "Using the CPI".
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Q. What index should I use for contract escalation?

A. There are a range of contracts which use price indexes to adjust payments and/or charges to take account of changes in price inflation. Although the ABS acknowledges that the various price indexes it publishes are used in indexation clauses, it neither endorses nor discourages such use.

The ABS is the central statistical authority for the Australian government. Its role includes a requirement to publish price index data, and to broadly explain the underlying methodology and general limitations of such data. The ABS may provide information about what price indexes are published by it, but will not recommend or comment on the use (or otherwise) of the price indexes. In addition, the ABS does not advise, comment or assist in preparing or writing contracts, nor does it provide advice on disputes arising from contract interpretation.

The ABS has prepared information for users that sets out a range of issues that should be taken into account by parties considering an indexation clause in a contract using an ABS published price index. This paper Use of Price Indexes in Contracts is available on the ABS website. The latest CPI data is available in Consumer Price Index, Australia (cat. no. 6401.0).
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Q. Can I compare price levels using price indexes?

A. No. Price indexes, such as the CPI are series constructed specifically to measure changes in prices over time. It is important to note that these indexes are not appropriate for measuring price differences between two separate cities. For example, the capital city consumer price indexes measure price movements over time in each city individually relative to a common reference period. They do not measure differences in retail price levels between cities.

In the June quarter 2013, the All Groups CPI was 103.1 for Sydney and 102.6 for Melbourne. This means that since the reference period 2011/12, prices in Sydney have increased more than Melbourne. This does not mean price levels are necessarily higher or lower in Sydney than Melbourne.
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Q. Why doesn't the ABS adjust the CPI when there are one–off price spikes (like bananas, or introduction of the GST)?

A. On a quarter to quarter basis, the prices of items can be impacted by a number of factors including exchange rates, supply constraints, specials (being introduced or withdrawn), natural disasters and seasonal patterns. These factors cannot always be readily quantified but they can have a real impact on the price of the items selected in the basket, so their impact can also be seen in the CPI.
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ANALYTICAL MEASURES OF INFLATION

Q. Is the CPI seasonally adjusted?

A. No, the headline CPI is not seasonally adjusted because it is never revised (apart from exceptional circumstances). However, the ABS produces an analytical series, 'All groups CPI, seasonally adjusted' which is calculated by applying seasonal adjustment to the expenditure class components of the CPI which are found to be seasonal, and then aggregates the seasonally adjusted and non–seasonally adjusted components, using the weighting pattern at the weighted average of eight capital cities level. As the seasonal adjustment process will be based on concurrent seasonal adjustment, the All groups CPI, seasonally adjusted estimates will be subject to revision. More information about seasonal adjustment can be found in Information Paper: Seasonal Adjustment of Consumer Price Indexes, 2011 (cat. no. 6401.55.003).
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Q. What is the difference between the "headline inflation" and the "underlying inflation" reported in the media?

A. The ABS publishes "headline inflation", the All Groups CPI, weighted average of eight capital cities as well as a range of sub components and analytical measures. Two of these analytical trend measures, the Trimmed mean and Weighted median, are commonly termed "underlying inflation".

The All Groups CPI measures the change in price of the entire CPI basket including any price shocks up or down (e.g. price spikes caused by supply constraints or a change in government subsidies or taxes). The Trimmed mean and Weighted median series are part of the suite of analytical measures of the CPI. They aim to remove volatility observed in the quarterly price change of the original CPI caused by seasonal and irregular price movements to estimate the underlying inflation trend.

For more information on underlying inflation, refer to Information Paper: Seasonal Adjustment of Consumer Price Indexes, 2011 (cat. no. 6401.0.55.003).
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FURTHER INFORMATION

Q. The ABS previously published average retail prices for selected items for each capital city. Why are they no longer available?

A. The ABS undertook a major review of the CPI in 2010 and has announced changes to ensure the CPI continues to meet the requirements of the Australian community. This review determined that the Average Retail Prices (ARP) data neither performs the function of showing price change over time (temporal measure) nor a detailed price level comparison between capital cities (spatial measure) in an unbiased, robust manner.

For more information on ceasing the publication of average retail prices, refer to the Introduction within the Analytical Series section of Outcomes of the 16th Series Australian Consumer Price Index Review, Dec 2010 (cat. no. 6469.0).
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Q. What information is published with the CPI?

A. Consumer Price Index, Australia (cat. no. 6401.0) includes a range of commentary and analysis for users in 'Main contributors to change' and 'Capital cities Comparison' each quarter. In addition, the CPI includes a printable pdf publication and a number of Excel workbooks available in the 'Download' tab that contain price indexes, percentage changes, and contributions to change that covers:
  • the top level 'All Groups',
  • 11 groups (e.g. Food and non–alcoholic beverages, Clothing and footwear, Alcohol and tobacco, Health, Insurance and financial services),
  • 33 sub–groups (e.g. Fruit and vegetables, Footwear, Alcoholic beverages, Medical, dental and hospital services, Furniture and furnishings), and
  • 87 expenditure classes (e.g. Fruit, Rents, Beer, Dental services, Child care).

These items are available for the eight State and Territory capital cities, and for the weighted average of the eight capital cities. A complete list of the CPI groups, sub–groups and expenditure classes is contained in tables 6 and 7 in Consumer Price Index, Australia (cat. no. 6401.0).

Various series are presented in Table 8, 9 and 10 in this publication which are helpful for analytical purposes, including:
  • All groups CPI, seasonally adjusted;
  • All groups CPI, excluding food and energy;
  • All groups CPI, excluding housing;
  • All groups CPI, including deposit and loan facilities (indirect charges); and
  • International comparison table (tables 9 and 10) which presents indexes for selected countries on a basis consistent with the Australian series 'All groups excluding Housing and Insurance and financial services'.

For further information, explore the various downloadable files (Adobe Acrobat pdf file and Microsoft Excel time series spreadsheets) from the 'Downloads' tab for Consumer Price Index, Australia (cat. no. 6401.0), or refer to the publications available in the 'Related Information' tab.
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Q. What if I want more detailed information?

A. The most detailed CPI information the ABS publishes is at the 'Expenditure class' level, for each State and Territory capital city. The ABS includes information about expenditure weights but does not publish data below this level. While the implicit quantity weights are held constant at the expenditure class level, the weights of items within an expenditure class (e.g. different types of bread) can be varied between periodic reviews to reflect changed purchasing patterns. Any weight changes are introduced into the CPI in such a way as to not affect the level of the index.

For each Expenditure class, a brief indication of typical items that are priced is available in A Guide to the Consumer Price Index: 16th Series, 2011 (cat. no. 6440.0), Appendix 2 "Types of goods and services priced in the 16th Series CPI". Additional information about the types of outlets or sources of pricing information, as well as issues with price collection is available in Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 8 "Price collection".
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Q. What are some limitations of the CPI?

A. The CPI is subject to both limitations in application and limitations in measurement.

i) Application

The CPI is designed to measure inflation for Australian metropolitan households and thus may not accurately reflect the experience of people living in rural areas. Also, the CPI cannot be used to measure differences in price levels or living costs between one place and another; it only measures changes in prices over time. A higher index for one area does not necessarily mean that prices are higher there than in another area with a lower index. It means that prices have risen faster in the area with the higher index since the two areas' common reference period.

The CPI uses a fixed basket which does not take into account people's substitution to relatively cheaper goods which is part of a cost–of–living index. However, it is still the most comprehensive measure of inflation.

ii) Measurement

Sampling error. Because the CPI measures price changes based on a sample of items, the published indexes may differ from what the results would be if every transaction by households were used to compile the index. Sampling errors are limitations on the accuracy of the index, not mistakes in calculating the index.

Non-sampling errors. Non-sampling errors are caused by problems of price data collection, logistical lags in conducting surveys, difficulties in defining basic concepts and their operational implementation, and difficulties in handling the problems of quality change. Non-sampling errors can be far more hazardous to the accuracy of a price index than sampling errors, so the ABS expends much effort to minimise these errors. ABS staff are trained to ensure the comparability of the quality of items from period to period, collection procedures are extensively documented, and there is a rolling program to confirm the continued representativeness of the items being sampled. In additional, the ABS has an ongoing research program to monitor and identify new/better sources of information (expenditure weights and price observations) and methodologies.

For more information, refer to Consumer Price Index: Concepts, Sources and Methods, 2011 (cat. no. 6461.0), Chapter 11 "Maintaining the relevance of the consumer price index".
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Q. Will the CPI be updated in the future?

A. Yes. The CPI is regularly updated to reflect changes in consumer buying habits, or shifts in population distribution and demographics. The ABS conducts a major review of the CPI approximately every six years to take advantage of data from the updated Household Expenditure Survey (HES). The HES allows the ABS to monitor and implement changes in the expenditure patterns of consumers. The ABS is continually updating the price samples and expenditure patterns below the published level to ensure it represents current expenditure by households, and researching improved statistical methods.

The ABS has implemented some of the key outcomes from the recent CPI 16th series review in the September quarter 2011 issue of the CPI. For further information about updates to the CPI, refer to
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Q. How can I get information on the CPI?

A. Free access to all published CPI data is available on the ABS website (www.abs.gov.au). If you require more detailed information, or would like to speak to someone about the CPI, call the National Information and Referral Service on 1300 135 070, or email client.services@abs.gov.au

This phone service also provides an option to listen to a recording of the latest CPI headline information.

We also recommend the following products for further information:
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INTRODUCTION OF CARBON PRICING

Q. Does the ABS produce a carbon exclusive Consumer Price Index (CPI) and/or Living Cost Indexes?

A. The ABS is not able to quantify the impact of carbon pricing, compensation or other government incentives and has not produced estimates of price change exclusive of the carbon price or measured the impact of the carbon price. As a result of the introduction of the carbon price, businesses may have adjusted their prices which have been reflected, as appropriate in the suite of price indexes compiled and published by the Australian Bureau of Statistics (ABS).
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Q. How was the carbon price reflected in the CPI and/or Living Cost Indexes?

A. The CPI and Living Cost Indexes measure changes in the prices paid by Australian households, including any taxes payable on goods and services. Therefore, any changes in the prices paid by Australian households as a result of the introduction of the carbon price have been reflected in the CPI and Living Cost Indexes.
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Q. When was the carbon price introduced and when did this impact on the prices measured in ABS statistics?

A. The carbon price was introduced on 1 July 2012. Any changes in prices that occurred as a result, have been measured in the period that they occurred. Some businesses indicated that their prices increased from 1 July 2012. This was reflected in the September quarter 2012 price index publications.
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Q. Was the introduction of the carbon price a one-off impact on the CPI and/or Living Cost Indexes?

A. The ABS is unable to measure the impact of the carbon price. It is therefore not known if the changes in prices were a one-off impact or continuing into later quarters. Further information on the estimated impacts on prices can be found in the publication Strong Growth, Low Pollution - Modelling a Carbon Price (The Treasury, 2011).
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Q. What industries were affected by the carbon price?

A. Companies operating large pollution emitting facilities, particularly those that generate in excess of 25,000 tonnes of carbon dioxide each year, are liable to pay the carbon price. When prices change, other industries may be impacted indirectly when they consume products produced by industries directly affected by a carbon price. This may in turn create a flow-through effect to other businesses as they consume those products in subsequent periods. Further information on the estimated impacts by industry can be found in the publication Strong Growth, Low Pollution - Modelling a Carbon Price (The Treasury, 2011).
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Q. Was the carbon price treated differently to the Goods and Services Tax (GST) in the CPI?

A. No. If prices changed as a result of the introduction of the carbon price, this was captured in the CPI. The ABS published an experimental constant tax rate measure following the introduction of the GST. This was possible because the GST is a deductible tax on consumption and able to be quantified. The carbon price is a price levied on the largest producers of carbon emissions in Australia, which is based on the pollution generated in the production process and the impacts on prices cannot be directly quantified. The ABS is therefore unable to produce a similar experimental measure on the impacts of the carbon price.
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