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Potential Impact of Tropical Cyclone Debbie on the CPI
FIGURE 1: PRICE GROWTH FOR BANANAS AND FRUIT EXPENDITURE CLASS
Tropical Cyclone Debbie saw tomato and capsicum producers most affected. Price changes for these vegetables in coming quarters will be reflected in the Vegetables expenditure class of the CPI. In the subsequent periods the ABS will also be analysing household expenditure on these items. The availability of detailed information by item from Australian retail businesses will enable a clear understanding of prices and the level of consumption for each item. This detailed information enables the ABS to identify and assess temporary supply shocks and consumers responses to price changes.
Tropical Cyclone Debbie damaged some of Australia’s most popular tourist destinations including the Whitsunday Islands (home of Hamilton Island and Daydream Island), Airlie Beach and Mackay. In addition to this, substantial damage has been reported for tourist accommodation and infrastructure (boats, ferries). Domestic holiday travel and accommodation accounts for 2.6 per cent of household spending in the CPI. In the short term, it is expected that there will be some negative impact on the domestic demand for travel and accommodation in the affected regions impacting the prices of these services. However, it is anticipated that tourism will recover over time in the affected regions. In 2011 Tropical Cyclone Yasi had a negligible impact on the Domestic holiday travel and accommodation series in the CPI. Similarly, Tropical Cyclone Debbie is expected to have a negligible impact on the CPI for the Domestic holiday travel and accommodation series.
Insurance coverage is held by most North Queenslanders and most home and contents insurance policies cover cyclone damage. As such it is expected claims for damages from Tropical Cyclone Debbie will increase, resulting in increased costs for insurance providers. This may lead to increases in insurance premiums in future periods.
Insurance accounts for 1.6 per cent of household expenditure in the CPI. Any impact on insurance premiums due to natural disasters largely depends on the amount and size of the claim payments. Typically insurance companies raise the price of premiums across all policy holders rather than just in specific regions to recover claim payments. Therefore, while insurance premiums in North Queensland are out of scope of the CPI, insurance pricing practises means price change for insurance premiums of households within scope of the CPI (i.e. within Australia's capital cities) will be recorded in the CPI. Figure 2 shows that the impact from natural disasters flows through over a number of years to insurance premiums.
Following Cyclone Yasi, Brisbane recorded rises in insurance premiums of 21 per cent during the period mid-2011 and mid-2013, compared to rises of 18 per cent and 10 per cent in Sydney and Melbourne respectively. Many insurance companies had increased their premiums in response to the greater risks involved and to recoup their substantial losses from higher reinsurance costs and processing insurance claims. The impact of Tropical Cyclone Debbie on insurance policies is expected to flow through to the CPI, particularly in Brisbane, over a number of quarters.
FIGURE 2: COMPARISON OF INSURANCE PREMIUMS ACROSS SYDNEY, MELBOURNE AND BRISBANE
USE OF TRANSACTIONS DATA IN THE CPI
Since 2014 the ABS has made use of transactions data to compile the Australian CPI, which now represents approximately 25 per cent of the weight of the CPI .Transactions data is high in volume and contains detailed information about individual transactions or summaries, date, quantities, product descriptions and value of products sold. In addition to the prices, transaction data provide information about quantities which enables a better understanding of the level of consumption for each product. These data provide up to date information on the substitutions made by consumers in response to price changes.
Transactions data will enable the ABS to assess the impact of Tropical Cyclone Debbie on fruit and vegetables prices paid, and quantities consumed, by consumers. This will allow the ABS to accurately determine the level of substitution that has occurred for fruit and vegetables and the contribution of each type of fruit and vegetable to the CPI in each quarter.
This analysis suggests Tropical Cyclone Debbie will impact some components of the CPI, however the magnitude of the impact is expected to be small. The impact on the headline CPI is also expected to be negligible.
Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). (2017). Australian vegetable-growing farms.
Department of Agriculture and Water Resources. (n.d.). Sugar.
Queensland Cane Growers Organisation Ltd. (2017, March). Cyclone Debbie chews up $150 million of Queensland’s cane crop.
Queensland Department of Agriculture and Fisheries. (2012). Sugar.
Queensland Farmers Federation. (2017). Farmers begin Cyclone Debbie recovery.
Special Broadcasting Service (SBS). (2011, February). Cyclone Yasi to cost Aussie agriculture $800m.
The Australian. (2011, February). Sugar industry takes $500m hit from Cyclone Yasi.
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