1301.0 - Year Book Australia, 2005  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 21/01/2005   
   Page tools: Print Print Page

History of retail/consumer prices indexes in Australia

The Consumer Price Index (CPI) is the latest of a number of retail price indexes that have been constructed for various purposes by the Australian Bureau of Statistics (ABS).

Early retail price indexes

Prior to the introduction of the CPI in 1960, there had been five series of retail price indexes compiled by the (then) Commonwealth Bureau of Census and Statistics. Those indexes were:

  • The A Series Index, which covered a range of commodities gathered into four groups - groceries, dairy products, meat, and house rents (for all types of houses) - was first compiled in 1912, with index numbers calculated retrospectively to 1901. In 1907 Mr. Justice Higgins handed down the 'Harvester' ruling which set a basic wage of 42 shillings per week. From 1913 to 1933 the A Series Index was adopted by the Commonwealth Court of Conciliation and Arbitration for use in adjusting this basic wage in line with price changes. The A Series Index was discontinued in June 1938.
  • The B Series Index, which essentially covered the same commodities as the A Series Index, except for the measurement of rents, was first compiled in 1925. In August 1924 the Conference of Statisticians of Australia and New Zealand resolved that 'for purposes of computing price levels in respect of rent, it is desirable that houses of four and five rooms only be taken into account'. The B Series Index was used for general statistical purposes but was never used for the purpose of wage adjustment. It was discontinued in 1953.
  • The C Series Index, which covered food and groceries, house rents (4 and 5-roomed houses), clothing, household drapery, household utensils, fuel, lighting, urban transport fares, smoking and some miscellaneous items, was introduced in 1921, with index numbers calculated retrospectively to 1914. The food and rent component of the C Series Index was the same as that for the B Series Index. In 1934 the Commonwealth Court of Conciliation and Arbitration adopted the C Series Index for the purpose of wage adjustment and it continued to be used for this purpose until 1953. At that time the Commonwealth Court of Conciliation and Arbitration decided to abolish automatic adjustment of wages, although some state tribunals continued to use or consider the C Series Index in their proceedings until it was discontinued in 1961.
  • The D Series Index, which was derived by combining the A and C Series Indexes and was compiled especially for wage adjustment purposes for a short period in 1933-34, for those industries which were exempt from the Arbitration Court's 1934 decision to adopt the C Series Index for wage adjustment.
  • The Interim Retail Price Index, which covered food and groceries, house rents (4 and 5-roomed houses), clothing, household drapery, household utensils, fuel, lighting, urban transport fares, smoking, and some services and miscellaneous items, was first compiled in 1954 and calculated retrospectively to 1952. It was discontinued in 1960 following its replacement by the first CPI. The Interim Index was intended to serve as a transitional index while a comprehensive review of the structure and weighting pattern of the C Series Index was undertaken, to reflect the rapidly changing consumption patterns affecting Australian households following World War II. To some extent, however, it replaced the C Series Index for general statistical purposes for a number of years prior to 1960, although it was never used for wage adjustment purposes.

C Series Index

By far the most important of these former retail price indexes was the C Series Index, which was the principal retail price index in Australia for close to 40 years. In 1920 the Royal Commission on the Basic Wage recommended the introduction of a new series which would cover a wider range of goods. This led to the to the introduction of the C Series Index, which was first compiled in 1921, with index numbers being compiled retrospectively to 1914. The C Series Index was subject to a general review in 1936 and a slightly revised regimen was introduced following that review. The C Series Index remained on this basis until its last issue in December quarter 1960, although it was continued on a special basis for certain transitional purposes until September quarter 1961.

The main reason for the long interval without any review or change in composition of the C Series Index after 1936 was the recurrent changes in consumption patterns which occurred during and after World War II. It was considered impossible at the time to devise a revised weighting pattern which would be any more representative, on a continuous basis, of post-war consumption than was the existing weighting pattern of the C Series Index. The Commonwealth Statistician of the time, in successive editions of the Labour Report during the 1950s and 1960s, explained the absence of any reweighting of the C Series Index in the following terms:
    From the outbreak of war in 1939 to late in 1948, periodic policy changes in various wartime controls (including rationing) caused recurrent changes in consumption and in the pattern of expenditure. This rendered changes desirable but made it impracticable either to produce a new index, or to revise the old one, on any basis that would render the index more representative than it already was of the changing pattern of household expenditure in those years. When commodity rationing had virtually ceased in the latter part of 1948, action was taken by the Statistician to collect price data of about 100 additional items and to gather information as to current consumption and expenditure patterns. This was done to facilitate review of the component items and weighting system of the C Series Retail Price Index in the light of the new pattern of wage earner expenditure and consumption that appeared to be then emerging. But there supervened, in the next few years, conditions which caused wide price dispersion, coupled with a very rapid rise in prices and a new sequence of changes in consumption and in the pattern of wage earner expenditure. Under these conditions it was not possible to devise any new weighting pattern likely to be more continuously representative of conditions then current, than was the existing C Series Index on the 1936 revision.
In 1953 the decision was made to continue to compile the C Series Index on its pre-war basis but to also compile an interim retail price index based as nearly as possible on the post-war pattern of consumer usage and expenditure. Nevertheless, the C Series Index continued to be regarded by the majority of users as the principal official index and was the one used in most indexation and escalation arrangements throughout the 1950s.

Interim Retail Price Index

The Interim Retail Price Index was based on post-war consumption weights. Compared with the C Series Index, the Interim Index covered an expanded range of items, including additional foods (such as packaged breakfast foods, soft drinks, ice cream and confectionery) and services (such as dry cleaning and shoe repairs). It retained the same weighting pattern throughout the period of its compilation and no attempt was made to revise its weights to take account of major changes in expenditure patterns and lifestyles that were occurring during the 1950s.

During that decade, house renting was substantially replaced by home ownership, the use of motor cars partially replaced the use of public transport and a variety of electrical appliances, including television, became widely used in households. During the same period, widely disparate movements occurred in the prices of different items of household consumer expenditure. It was considered that the combined impact of these factors made it impracticable to successfully introduce a comprehensive new retail price index during the period to 1960.

Consumer Price Index

In 1960 a new approach was implemented. Instead of the former emphasis on long-term fixed-weight indexes, the aim was to compile a series of shorter-term indexes that would be chain-linked together to form a long-term series. The Consumer Price Index, commonly referred to as ‘the CPI’, was the first price index of this kind constructed in Australia.

The CPI was first compiled in 1960, with index numbers being compiled retrospectively to mid-1948. Like its predecessor indexes, the CPI was designed to measure quarterly changes in retail prices of goods and services purchased by metropolitan wage earner households.

The CPI has been reviewed and reweighted thirteen times. At its inception in 1960, the CPI consisted of three original linked series, with changes in weights in 1952 and 1956. Weights were changed in 1960 and subsequently in 1963, 1968, 1973, 1974, 1976, 1982, 1987, 1992, 1998 and 2000. The method of linking the sequence of short-term price indexes to form one continuous series is described in Chapter 9 of Australian Consumer Price Index: Concepts, Sources and Methods (6461.0).

Historically, the CPI and its predecessors were developed with the principal purpose of providing input to the highly centralised wage and salary determination process that existed in Australia. As recently as 1998 the principal purpose remained as an input to wage adjustment, although the range of uses for the CPI had been growing steadily, including its use as a general measure of inflation and for adjustment of age and superannuation pensions, other government benefit payments, and public and private sector contracts and charges. However, with the emerging trend towards decentralised, enterprise-level wage and salary setting arrangements in the later half of the 1990s, the historical purpose of the CPI was greatly diminished.

This culminated with the introduction of the 13th Series CPI in September quarter 1998. Several major changes were made to the index at that time, most notably the decision that the CPI would change from a measure of living costs of wage and salary earning households to its current form, as a general measure of price inflation for the household sector as a whole (see Price impacts on the living costs of selected Australian household types).

Long-term linked series

To provide an approximate long-term measure of retail/consumer price change for the period since the first Australian retail price index was compiled, the ABS has constructed a single series of index numbers (table 28.4), by linking together selected retail/consumer price index series from among those described above. The index numbers are expressed on a reference base 1945 = 100.0, which was the end of a period of relative price stability during World War II.

Graph 28.6 shows the annual percentage changes derived from this retail/consumer price index series for the 100-year period.

Graph 28.6: RETAIL/CONSUMER PRICE INDEX, Annual changes