1504.0 - Methodological News, Dec 2000  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 05/02/2001   
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There is considerable interest in comparing price levels between different parts of Australia. Policy designers would like to know the relative costs of living in different places. Businesses would like to know what allowances to pay when employees move from one city to another. Relative price levels appear in the models used by economists to analyse questions about the locational choices of industries and households.

The Consumer Price Index (CPI) tells us about the rates at which prices are changing in the eight capital cities; it does not tell us about relative price levels or relative costs of living. The ABS Analysis Branch, Prices Development Section and the Consumer Price Indexes Section are developing some experimental "spatial indexes", with the aim of filling this gap.

During the first half of 2001, the project team will be undertaking some exploratory work to address such questions as:

  • What questions is a spatial index attempting to answer?
  • What goods and services should be or can be included in a spatial price analysis?
  • What index formulae are most appropriate?

The ABS has done some work of this kind in the past. For example, in 1994 there was a three-way comparison of the cost of living in Darwin, Perth and Sydney, to support the inquiries of a government committee. In 1995, a comparison was done for Christmas Island, the Cocos Islands and Perth. Our exploratory work next year will draw on that experience.

One of the technical problems to be solved arises because many items included in the CPI basket for one city may not appear in the baskets for other cities. Ways of dealing with this "sparse matrix" problem have been proposed by several analysts, including Dr Jim Cuthbert (former head of the Scottish National Statistical Office) who visited the ABS in early 2000. The project team will be consulting Dr Cuthbert on this and other issues.

For more information, please contact William Milne on (02) 6252 6298.

E-mail: william.milne@abs.gov.au