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)
All groups (Annual HFCE weights) (%)
All groups (Published) (%)
|Age pensioner |
|Other government transfer recipient |
|Self-funded retiree |
|(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 (%)
|Weighted eight capital cities |
|(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.