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
   Page tools: Print Print Page Print all pages in this productPrint All RSS Feed RSS Bookmark and Share Search this Product

EMPIRICAL RESULTS


3.1 In theory, annually re-weighting the CPI and SLCIs reduces substitution bias. To test this theory, this section presents empirical results that compare: (a) the published SLCIs and CPI eight capital city indexes which have weights updated every 6 years with (b) annually re-weighted SLCIs and the CPI capital city indexes.

3.2 Empirical analysis of the SLCIs sub-population indexes shows that the annually re-weighted indexes record lower rates of growth over the analysis period (September 2011- September 2015); see table 1 below.

3.3 The SLCIs results are consistent with the findings in ABS (2016) that more frequent (annual) weight updates reduces substitution bias in the CPI. Table 1 shows that the cumulative increase in the price index is lower when weights are updated more frequently.

TABLE 1 CUMULATIVE CHANGE - 2011-2015 (a)

Sub-population
All groups (Annual HFCE weights) (%)
All groups (Published) (%)

Employee
4.0
4.2
Age pensioner
6.9
7.0
Other government transfer recipient
7.3
7.4
Self-funded retiree
7.0
7.1
PBLCI(b)
7.1
7.2

(a) The SLCIs sub-populations have undergone significant enhancements since introduction in June 2000. The analysis is limited to this more recent period for comparability.
(b) Pensioner and Beneficiary Living Cost Index (PBLCI) is an aggregation of Age pensioner and Other government transfer recipient households.

3.4 Empirical analysis of the eight capital city indexes, and the weighted average index also shows that the annually re-weighted indexes record lower rates of growth over the analysis period (September 2005 - September 2015); see table 2 below. Substitution bias is reduced for all the capital cities and the weighted average index.

TABLE 2 CUMULATIVE CHANGE - 2005-2015 (a)

Capital city
All groups (Annually HFCE weights) (%)
All groups CPI (%)

Sydney
28.4
29.8
Melbourne
27.4
28.6
Brisbane
31.3
33.1
Adelaide
27.3
28.6
Perth
30.7
31.9
Hobart
24.6
25.7
Darwin
32.0
33.4
Canberra
26.4
27.7
Weighted eight capital cities
28.5
30.1

(a) The analysis period maintains consistency with previous investigations (ABS, 2016).

3.5 The empirical results from this analysis support the proposed methods for the weight update of the SLCIs and the capital cities CPIs in the inter-HES years.