6401.0.60.006 - Information Paper: An Update on the Annual Re-weighting of the Australian CPI and Living Cost Indexes, 2018  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 14/08/2018  First Issue
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INTRODUCTION


1.1 As part of the Enhancing Australia's CPI work program (ABS, 2015b), the ABS has reviewed data sources available to re-weight the CPI more frequently. Annually available Household Final Consumption Expenditure (HFCE) data from the National Accounts enables updating of the CPI and SLCIs expenditure class (EC) weights on an annual basis.

1.2 In 2016, the ABS proposed annually re-weighting the Australian CPI using HFCE data from the Australian National Accounts (ABS, 2016). The research presented gave empirical support for higher frequency re-weighting of the CPI to reduce substitution bias. The proposal to annually re-weight the CPI using HFCE data ensures greater coherence across macroeconomic statistics and aligns the ABS with international standards.

1.3 Following the release of the 2016 paper, the ABS undertook an extensive stakeholder engagement program (including the Reserve Bank of Australia, Department of Social Services, Department of Finance, Commonwealth and State Treasuries), a call for public submissions, and an external review of methods and data sources by price index and National Accounts experts.

1.4 Stakeholders and public submissions were supportive of the ABS proposal to annually re-weight the Australian CPI. Consultation with key stakeholders also raised additional topics for further ABS research. These topics included: methods and data sources to more frequently re-weight the SLCIs; and providing methodological clarity for the calculation of capital city weights in the inter-HES years. This paper presents concepts and methods (section 2), and empirical results (section 3).

1.5 The methods presented in this paper will be implemented in the December quarter 2018 for both the SLCIs and the CPI.