Update to measuring the CPI in the December 2020 quarter

Provides an update on the CPI ahead of the December 2020 quarter release.

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Released
14/01/2021

Introduction

In recent quarters the ABS published a series of articles informing users of how COVID-19 impacted the measurement of the Consumer Price Index (CPI). While the effects of COVID-19 on the CPI are subsiding, they continue to impact some series in the December 2020 quarter, albeit to a smaller extent than in the June and September 2020 quarters.

This article provides an update on the CPI for the December quarter, scheduled for release on 27 January. A list of the previous articles on this topic is provided in the appendix.

The December quarter release of the CPI will again provide additional analysis in two spotlight articles: CPI exclusion-based measures and Underlying inflation measures. These articles outline COVID-19 related impacts on the CPI, including temporary changes such as free child care and the subsequent re-application of fees.

For further information, please email prices.statistics@abs.gov.au.

Re-weighting the CPI

Each December quarter the ABS updates the CPI expenditure weights. This provides an annual update to the CPI spending patterns of Australian households, which is important to accurately measure inflation.

In response to the COVID-19 pandemic, there was a significant, and in some cases, sustained shift in the spending patterns of Australian households. An information paper on the CPI weight update was published in December outlining the approach taken for the 2020 weight update. The new weights were also provided, which have been implemented in the CPI for the December quarter.

For more information on re-weighting the CPI see The 2020 annual re-weight of the Australian Consumer Price Index.

Data collection

The suspension of CPI in-store collection remained in place for the December 2020 quarter. As in recent quarters, the small amount of collection previously undertaken in-store (approximately 2 per cent of the CPI) continued to be collected by ABS office-based staff either online or over the phone.

Missing prices, due to goods or services being temporarily unavailable or businesses being temporarily closed, typically represent around 5-6 per cent of the CPI sample each quarter. Over the past two quarters this was slightly higher at around 7 per cent, while for Melbourne it was 10 per cent in the September quarter. With most businesses re-opened, the number of missing prices in the December quarter returned to previous levels of 5-6 per cent.

Government schemes

Governments at the Federal and State and Territory levels introduced a number of schemes to support households in the recovery from the economic impacts of COVID-19. Some of these schemes directly impact the CPI where the cost of the good or service paid by the household changed. 

The CPI measures the out-of-pocket household expense, so any scheme that lowers the cost of the good or service is reflected as a price fall in the CPI. Conversely, when the scheme ends and the cost of the good or service returns to the previous amount, this is reflected as a price rise in the CPI.

For the December quarter, the schemes impacting the out-of-pocket expenses of households were:

  • The Federal government's $25,000 HomeBuilder grant, and similar $20,000 grants introduced by the Western Australian (WA) and Tasmanian state governments, which support expenditure on residential construction. The provision of these grants to consumers for new home builds and large renovations has a downward impact on the New dwelling purchase by owner-occupiers series in the CPI. 
  • The WA Household Electricity Credit provides households with a one-off $600 credit from 1 November 2020. The impact on the CPI for the Perth electricity series will be a significant fall in the December 2020 quarter.
  • State and Territory governments introduced a variety of schemes to lower costs for households and to encourage spending on discretionary services such as dining out, domestic travel and other forms of entertainment. The ABS is monitoring these schemes and expects a negligible impact in the December 2020 quarter.

Child care

On 6 April the Australian Government introduced the 'Early Childhood Education and Care Relief Package'. Free child care was provided for families from 6 April to 12 July, resulting in a 95 per cent fall in the CPI Child care series in the June 2020 quarter. With the removal of free child care on 13 July, families were again required to pay fees similar to pre-6 April.

The December quarter will see the Child care series return to the pre-COVID-19 level, following a significant increase in the September quarter. The September quarter included free child care for eight days at the start of July and low attendance levels in Melbourne during stage 4 restrictions. The subsequent increase in the December quarter reflects fees being charged for the entire quarter and higher attendance levels in Melbourne.

Figure 1 shows the December quarter index for the CPI Child care series will increase from 112.6 to around 152.8. The rise in child care will add approximately 0.3 percentage points to the headline CPI movement in the December quarter.

September 2007: The Child Care Rebate (CCR) was introduced to the existing Child Care Benefit (CCB).
September 2008: Increase in the Child Care Rebate from 30% to 50%.
September 2018: Child Care Subsidy replaced with the Child Care Benefit and Child Care Rebate.
June 2020: Fee free Child care introduced on 6 April 2020 leading to a 95% price fall.
September 2020: Free child care ended on 12 July, leading to a large increase in the September quarter.
December 2020: CPI Child care series will increase from 112.6 to around 152.8.

Unavailable goods and services

During the first wave of the COVID-19 pandemic, Governments introduced lockdowns, social distancing requirements and travel restrictions. This saw a number of services being completely unavailable or significantly restricted for the majority of the June 2020 quarter. In response to this, the ABS developed an imputation framework which included the treatment for unavailable or significantly restricted services (see Figure 2 in the appendix). 

For services that were 'unavailable' in the June quarter, a movement was imputed off the headline CPI quarterly movement. This reflected the fact that there were no prices available and no (or very little) consumption of the particular service during the quarter. This approach was used for the following five series in the June 2020 quarter, with the two latter series again imputed in the September quarter: urban transport fares; sports participation; other recreational, sporting and cultural services; domestic holiday travel and accommodation; and international holiday travel and accommodation. These five series contributed around 9 per cent of the weight of the CPI in the June 2020 quarter.

With social distancing requirements and restrictions easing further in recent months, it is again possible to measure price change for these CPI series in the December quarter. The exception to this is international holiday travel and accommodation with border closures continuing to restrict international travel.

Appendix 1 - Previous articles published on the impact of COVID-19 on the CPI.

Appendix 2 - Imputation framework

Figure 2 - December 2020 quarter imputation
This image outlines the CPI imputation decision framework. It is a flow chart made up of yes or no questions. The first question asks “Is the good or service still available to purchase?” If the answer is Yes, this flows on to the next question of “Has the expenditure declined significantly?”. If the answer is No, this flows on to the next question of “Has the expenditure been substituted to a similar good or service?” Following the Yes answer line, if the answer is No to the question “Has the expenditure declined significantly?”, standard imputation is used. If the answer is Yes (e.g. urban transport), this flows to the next question of “Has the expenditure been substituted to a similar good or service?”, joining the No flow line from the first question. From the question of “Has the expenditure been substituted to a similar good or service?”, if the answer is Yes (e.g. alcohol consumed on premises) then donor imputation is used. If the answer is No (e.g. international travel), the decision is to impute off headline CPI quarterly movement.