Note on the impact of COVID-19 on the Consumer Price Index
The Australian Bureau of Statistics (ABS) has been closely monitoring the impact of the COVID-19 virus on our statistics. The Consumer Price Index (CPI) is a measure of inflation for the goods and services purchased by Australian households. The March quarter covered the period 1 January to 31 March. The decisions to restrict overseas and domestic travel and social gatherings came into effect in mid-March and therefore have had only a small impact on the CPI for the March quarter.
The COVID-19 restrictions means that some in-store price collection is not possible. For the June quarter the ABS has put in place measures to ensure the CPI price collection is not adversely affected.
This note explains the impact of the COVID-19 virus on the CPI and outlines the potential impact for the June quarter release.
CPI price collection
The ABS uses a range of data sources to produce the CPI, including: direct collection, administrative data, web scraping and transactions 'scanner' data. Direct collection includes online, over the phone and in-store, is performed by ABS officers and contributes slightly more than half the weight of the CPI. The vast majority of direct collection is conducted online or over the phone. Less than two per cent of the weight of the CPI is collected by ABS officers in-store.
The ABS suspended in-store collection in late March to ensure the health and safety of our collectors. The ABS will continue to directly collect prices online and over the phone, and has moved the majority of in-store collections to these modes. The ABS does not expect any disruption to other data sources used in the CPI.
Missing prices may occur for items where stock is temporarily unavailable or due to sampled businesses closing, whether permanently or temporarily. It is expected that the impact of COVID-19 will see an increasing prevalence of missing prices in the June quarter. The ABS is closely monitoring the number of missing prices to determine the impact on the CPI.
The ABS has well established methods to deal with missing prices. Where prices are missing for either temporarily unavailable stock or where the business has closed, the standard imputation approach will be used. This approach imputes a price movement based on similar available items. If a business has closed permanently, another business may be sampled in its place at an appropriate time.
CPI series with zero to little expenditure
The ABS publishes price change for 87 expenditure classes. The CPI is measured by collecting prices for products within each expenditure class, which are weighted together based on household expenditure data. Weights at the expenditure class level are held fixed for a period of 12 months. Below the expenditure class level, weights can be updated more frequently to reflect changes in spending patterns.
COVID-19 presents a challenge in how to measure price change at the fixed-weighted expenditure class level which contain products with zero to little expenditure in the June quarter. Such series may include: international and domestic holiday travel and accommodation; alcohol consumed on premises; and attending sporting and cultural events.
The ABS is considering two imputation options for zero to little household expenditure:
- Impute a quarterly movement based on the headline CPI. This has the effect of this series not contributing to the CPI quarterly movement.
- Impute a quarterly movement based on the average of the same quarter in recent years. This assumes that the seasonal nature of price change for this series would have been maintained if travel restrictions weren't in place.
The ABS will provide information at a later date on which option will be used.
International holiday travel and accommodation
The ABS samples a number of overseas destinations and collects prices for airfares, tours and overseas accommodation. With widespread travel restrictions introduced in mid-March,
the price impacts will largely be evident from the June quarter. This series will be imputed in the June quarter using one of the aforementioned options.
The ABS measures the change in the out of pocket expenses paid by households for child care services each quarter. In early April the Australian Government announced that child care services will be provided for free to working families up until the end of June. This will be reflected as a price fall in the CPI quarterly movement.
Late March saw restaurants close for dine-in meals following restrictions placed on the size of gatherings. In a lot of cases restaurants are continuing to provide takeaway meal options. To reflect the fact that many restaurants are still operating, the ABS will collect prices for takeaway meals and include these prices in the Restaurant meals series.
The ABS first made use of scanner data in the CPI in 2014. In 2017 a new method was introduced to make greater use of the expenditure information available in the scanner data. The new method expands the number of items included in the CPI basket and updates the contribution of each item in the CPI by expenditure. This effectively re-weights the items each quarter based on how much has been purchased.
The increase in expenditure on
many grocery items following the outbreak of COVID-19 will be reflected in the scanner data used in the CPI. Item substitution is captured within each expenditure class, but not across expenditure classes. For example, substitution between fresh apples and tinned fruit will be captured as they are both classified within the Fruit expenditure class. On the other hand, substitution between fresh apples and canned soup won't be captured as they are classified to different expenditure classes.
Scanner data is used in 28 of the 87 expenditure classes published by the ABS and includes the following:
- Food and non-alcoholic beverages, excluding Restaurant meals and Takeaway and fast food
- Non-durable household products, e.g. toilet paper
- Cleaning and maintenance products, e.g. dishwashing liquid, laundry powder
- Personal care products, e.g. soap, shampoo, hand sanitiser
- Pets and related products, e.g. pet food
Further ABS data measuring the impact of COVID-19 in Australia can be found via abs.gov.au/covid19.