6421.0 - Information Paper: An Analytical Framework for Price Indexes in Australia, 1997  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 24/02/1997  Ceased
   Page tools:

PREFACE

The Australian Bureau of Statistics (ABS) has prepared this information paper as a basis for user consultation on a strategy for enhancing our statistical service in the field of price indexes.

A separate information paper, scheduled for release in April 1997, will discuss the periodic Consumer Price Index (CPI) review process and will initiate a consultation process to address, amongst other things, the issue of the principal purpose of the index.

It is timely to note that, in the United States of America, the Final Report to the US Senate Finance Committee, from the Advisory Commission To Study The Consumer Price Index (referred to as the Boskin report), was released in early December 1996. A specific recommendation in the report was that the objective in measuring consumer prices in that country should be to establish a cost of living index with important applications such as indexation of federal benefits. Other issues raised in the United States report, such as index bias, will also be addressed as part of Australia's CPI review process.

In recent years, there has been increasing international attention directed towards developing new approaches to the measurement of inflation. Accordingly, this paper presents a statistical framework which will enable the range of separate price index series to be drawn together and presented as a system of indexes designed to support the analysis of inflation.

The ABS has had discussions with Statistics New Zealand (SNZ) on the content of this information paper and SNZ also intends to seek views from their users on the directions contained in the paper.

The Australian Statistics Advisory Council provided in principle support to the proposals in this paper, and encouraged the ABS to consult widely with users.

The ABS would welcome reactions from users to the proposals contained in the paper. Comments should be provided, preferably in writing, by 28 March 1997 to: David Collins, Director, Producer Price Indexes Section, email david.collins@abs.gov.au, by facsimile on Canberra (06) 252 7060 or mail at PO Box 10, Belconnen, ACT 2616 telephone Canberra (06) 252 6248.

In addition, seminars to discuss the proposals will be held in each capital city during the period March to April 1997. Those users who wish to attend a seminar should advise David Collins (see above for contact details) by 3 March. You will then be notified of the timing, venue and other details closer to the time.

W. McLennan
Australian Statistician



SUMMARY

The ABS currently publishes a range of separate consumer, producer and international trade price indexes, each relating to a particular segment of economic activity, as well as price measures derived from the national accounts. These measures are used for a wide variety of purposes including policy and commercial applications.

In order to help improve users' knowledge and understanding of the range of price statistics available, and help facilitate the selection of the most appropriate measure(s) for any particular application, an outline of each of the different price measures is provided and their interrelationships illustrated by reference to the Input Output framework.

Given the differing principal objectives of the various individual price measures, there is scope to enhance the analytical value of the information through the ABS drawing the series together and presenting them as a system or family of price indexes. This system would be designed around a cohesive statistical framework developed specifically to support the study of inflation. The framework would also accommodate future developments in the field of price statistics such as extensions in coverage and presentation under alternative classifications.

Recognising a number of ideal properties, an analytical framework based on a 'market transactions' approach is developed. Then, a Domestic Final Purchases (DFP) whole-economy price index model is presented. The DFP model embraces both an aggregate measure and component indexes. It forms part of the broader, market transactions statistical framework which provides for complementary views of the economy as measured by Stage of Production producer price indexes, the Labour Cost Index and Export Price Index.

The ABS has recently commenced work on the periodic review and reweighting of the CPI and an ABS information paper seeking user input to the review will be published in April 1997. In parallel with that work, the ABS will be consulting with users on proposals to commence work on developing a price index corresponding to the Household Consumption Purchases (HCP) component of the DFP model and designed specifically to assist in the analysis of inflation. It would be based on existing CPI price collections but exclude interest rates and non-market determined prices. Its scope would include all households and it would use national accounts data for weights, probably with annual reweighting (using chain index methods). The frequency of this component could be monthly or quarterly, although a monthly index would require some additional data collection.

In recognition of the increased attention being given to measures of underlying inflation alternative methods of abstracting from the effects of changes in indirect taxes and subsidies, seasonality and volatility are considered. A 'specific adjustment method', involving the development of net price indexes (at constant tax rates) and the application of seasonal adjustment and smoothing techniques, is assessed as being conceptually superior. Therefore, the ABS proposes to pursue investigations into the measurement of underlying household inflation through the development of an experimental underlying price index of HCP, applying the specific adjustment method.

Further, the ABS proposes to undertake a comprehensive review of its strategy for the publication of price statistics, with the aim of ensuring key information is communicated effectively to users. The strategy will need to provide for the release of the results from new initiatives as they become available.