APPENDIX 8 CPI CLASSIFICATION
1. This appendix contains information and examples of where greater alignment between classifications (or creating and improving correspondences) may improve statistical coherence.
2. The ABS considered numerous criteria to assess the most appropriate classification for use in the CPI. The classification should: align with Australian CPI concepts; represent the economic reality faced by Australian households; and facilitate both international comparisons of CPIs and internal coherence with other ABS statistics.
ALIGNMENT WITH AUSTRALIAN CPI CONCEPTS
3. The Consumer Price Index Commodity Classification (CPICC) facilitates a CPI based on the acquisitions approach whose principal purpose is to measure household sector inflation. The Classification of Individual Consumption According to Purpose (COICOP) facilitates a CPI based on an economic cost-of-use approach which is more closely aligned to a CPI that measures household standard of living.
4. CPICC is a demand-based classification which is based on the concept of household utility. It groups items together which are substitutable. COICOP groups products together which are deemed to fulfil particular purposes.
5. One of the major differences between the two classification concepts is the treatment of owner-occupied housing (OOH) in the CPI. The COICOP treatment is for OOH to be measured by imputed rent. In the
acquisitions based CPICC housing is measured as newly constructed owner-occupied houses.
6. There are a number of areas where the ABS prefers to depart somewhat from COICOP in order to be more representative of the Australian context. One example is the inclusion of bicycles in transport under COICOP. In the Australian context, bicycles are judged to be more appropriately classified to recreation.
7. Despite these conceptual differences the two classifications are broadly similar at the top level.
8. The differences arising here are considered slight, and would not have a significant impact at the higher levels of CPI. However, having an ABS CPI purpose designed classification allows the ABS to be more representative of, and more responsive to, changes in the Australian households’ experiences.
9. Using a COICOP-based classification may have the advantage of being broadly internationally comparable at the top level.
10. However very few, if any, countries use the standard COICOP structure. The majority of agencies that do have structures based on COICOP manipulate the structure to be more relevant to their domestic circumstances. For example, the Eurostat Harmonised Index of Consumer Prices excludes housing all together, while other countries such as the USA use classifications and structures designed solely to meet their domestic needs.
11. The CPICC is internationally comparable to classifications used in other countries' CPIs. It is conceptually different to the COICOP but there is a broad correlation which facilitates international comparisons.
12. The ABS generally advocates that classifications ensure comparability and coherence across economic statistics, although not at the risk of undermining the primary purpose for which the component statistics are compiled. Although the CPICC aligns best with the underlying concepts of the Australian CPI there are other ABS statistics that utilise COICOP or a variant of COICOP for household expenditure classification.
Household Expenditure Survey (HES): This survey is used to update the CPI weights during reviews and would not benefit from CPI adopting COICOP. The HES uses the Household Expenditure Classification (HEC) for internal and published analysis, however the survey is also released in a standard System of National Accounts (SNA) COICOP structure for international analysis.
Household Final Consumption Expenditure (HFCE): This data set is compiled as part of the Australian System of National Accounts (ASNA). It is classified on a COICOP basis modified for the Australian economy, i.e. ASNA COICOP is deemed to be more appropriate in this series due to the different basis of the accounts (economic cost-of-use). Because of these amendments to the structure, the ASNA COICOP structure differs from COICOP used for the HES.
Input-Output (I-O) tables: The ASNA also use the Input-Output product classification (IOPC) to structure the Input-Output (I-O) tables. The I-O tables use CPI data for deflation purposes. Because the I-O system describes the production and subsequent use of all goods and services, the classification is defined in terms of characteristic products of the industry sectors. A direct correspondence between CPICC and IOPC has not yet been developed. However, a correspondence was developed between the detailed Household Expenditure Classification (HEC) and the IOPC, and an indirect correspondence between the CPICC and IOPC could be readily developed if required.