Selected Living Cost Indexes, Australia methodology

Under the acquisitions approach used in the CPI, the net purchase of housing, the increase in volume of housing due to renovations, extensions and other costs (e.g. maintenance costs and council rates) are included for all owner-occupied housing. Changes in rental are measured for that part of the population that resides in rented dwellings. The CPI excludes interest paid on mortgages.

Under the outlays approach used in the SLCIs, the changes in the amount of interest paid on mortgages (measured as part of Insurance and financial services) and other costs (e.g. maintenance costs and council rates) are included for owner-occupied housing. In addition, changes in rental are measured for that part of the reference population that resides in rented dwellings. The SLCIs therefore exclude the net purchase of housing and the increase in volume of housing due to renovations or extensions.

Insurance (other than health insurance) is treated differently in the SLCIs. Under the acquisitions approach, the weight for insurance in the CPI relates to the net value of the service provided by the insurance company. In simple terms, the amount of premiums paid by households less the amounts reimbursed by way of claims. Under the outlays approach used for the SLCIs, the weight relates to the gross value of insurance premiums paid by households.

Financial services are treated differently in the SLCIs. The SLCIs include Mortgage interest and Consumer credit charges but exclude all Other financial services (i.e. Deposit and loan facilities (direct charges), and Other financial services). The ABS obtains average monthly balances and interest flows data from selected financial institutions for each of their consumer products to calculate the Mortgage Interest and Consumer credit charges series. Data are provided by the sampled financial institutions on a one month lag basis. The SLCIs measure changes to mortgage interest charges (due to both changes in interest rates and debt levels) that apply to the purchase of newly and previously purchased properties. Refer to Frequently asked questions (FAQs) about the measurement of housing in the Consumer Price Index (CPI) and Selected Living Cost Indexes (SLCIs) for more information. 

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The Selected Living Cost Indexes (SLCIs) provide quarterly information about price change on the out-of-pocket living expenses for four population sub-groups: employee households; age pensioner households; other government transfer recipient households; and self-funded retiree households. Also included is the Pensioner and Beneficiary Living Cost Index (PBLCI) which provides quarterly information about the combined price change on out-of-pocket living expenses for two population sub-groups; age pensioner households and other government transfer recipient households. The SLCIs inform users of the extent to which the impact of price change varies across these different sub-groups of the Australian population.

The SLCIs are designed to measure the effect of price change on out-of-pocket living expenses of households (outlays approach), while the CPI is designed to provide a general measure of price inflation for all Australian households (acquisitions approach). In practice, for most goods and services purchased by households there is no difference between the two approaches. However, there are three areas of expenditure in which these conceptual approaches provide significantly different results: purchase of dwellings; purchase of durable items; and financial services and the use of credit.

The movements for the SLCIs are produced as a by-product of the equivalent CPI expenditure class in the majority of cases. The composition of the SLCIs baskets are based on the pattern of household expenditure, and is based primarily on data obtained from the Household Expenditure Survey (HES) when it is available, currently six-yearly. In inter-HES years, Household Final Consumption Expenditure (HFCE) data from the National Accounts is used as the primary data source to update the expenditure patterns of the SLCIs at the expenditure class level on an annual basis.

The SLCIs are published for the weighted average of eight capital cities geographic level only.

The SLCIs are released each quarter (three months ending March, June, September and December). The SLCIs will generally be released on the first Wednesday one week following the release of the Consumer Price Index, Australia.

The SLCIs provide a measure of the impact of price change on the out-of-pocket expenses incurred by selected household types to obtain a fixed basket of consumer goods. In calculating an average measure of this type it is necessary to recognise that some items are more important than others. Measures of expenditure on each of the expenditure classes are obtained from either the latest available HES or HFCE.

Like the 2009–10 HES, the 2015–16 HES included additional sampling of age pensioners and other government transfer recipient households. Analysis of these results showed that expenditure weights at the capital city level were sufficiently reliable for all household types, thus improving the alignment and scope of the price collection and expenditure weights.

Annually updating the SLCI weights will ensure that the SLCIs more accurately reflects the spending patterns of Australian household between each HES.

With the exception of interest charges, all price movements used in the SLCIs are sourced from the CPI, typically at the expenditure class level. The collection of prices in each capital city is largely carried out by trained ABS staff. Prices are collected in the kinds of retail outlets and other places where metropolitan households purchase goods and services. This involves collecting prices from many sources such as supermarkets, restaurants, travel agents and schools. Prices are collected by personal visits, telephone or internet as appropriate. The ABS is also utilising administrative and transactions datasets as a method of obtaining prices for use in the CPI. The frequency of price collection by item varies as necessary to obtain reliable price measures.

As the SLCIs aim to measure price changes for a fixed basket of goods and services over time, identical or equivalent items must be priced in successive periods. However, as items available in stores are constantly changing, these changes in the quality must be identified and adjusted for to ensure that the index reflects only 'pure' price changes. These adjustments take place during the compilation of the CPI and are also used in the SLCIs price movements.

The SLCIs are produced as index numbers rounded to one decimal place. Revisions have never occurred and will only occur in exceptional circumstances.

The SLCIs for employee households, age pensioner households, other government transfer recipient households and self-funded retiree households were first compiled and published for the June quarter 2000, with the series backdated to the June quarter 1998. These were published in Analytical Living Cost Indexes for Selected Australian Household Types. The PBLCI was first compiled for the June quarter 2007, and first published for the June quarter 2009 in Pensioner and Beneficiary Living Cost Index.

Prior to the June quarter 1998, the CPI was designed as a measure of changing living costs of wage and salary earner households and compiled on the outlays approach. The ABS regularly reviews weights of items for the four household types, and expanded the sample for the 2009–10 and 2015–16 HES to include more households in order to improve the reliability of the pensioner households and other government transfer recipient households expenditure estimates.

Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. Percentage changes are calculated to illustrate two different kinds of movements in index numbers:

• movements between corresponding quarters of consecutive years
• movements between consecutive quarters.

The Selected Living Cost Indexes, Australia contains Explanatory Notes that provide information about the structure, weights, data sources and other technical aspects of the series. Further information on Living Cost Indexes is available in the Information Paper: Introduction of the Pensioner and Beneficiary Living Cost Index, Australia. For further information on the Consumer Price Index refer to: A Guide to the Consumer Price Index: 17th Series. More detailed information can also be found in Consumer Price Index: Concepts, Sources and Methods.

The Selected Living Cost Indexes, Australia is produced quarterly and can be accessed here. For links to data and publications relating to the Consumer Price Index and other prices series, please see Price Indexes and Inflation topics.

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Expenditure Weights

The relative share of different spending categories used to calculate an index, which varies depending on the type of household and their spending habits

Financial Services

Refers to various services such as mortgage interest and consumer credit charges, but excludes other financial services such as savings deposits or loan facilities

Household Expenditure Survey (HES)

A periodic survey that collects detailed data on the consumptions patterns and spending habits of Australian households, which is used to derive the expenditure weights for the SLCIs

Household Final Consumption Expenditure (HFCE)

Data collected by National Accounts that reflect the total value of goods and services consumed by households. It is used to update the expenditure weights for the SLCIs in years when the Household Expenditure Survey (HES) isn't available

Index reference period

The period for which an index series is given the value of 100.0. The current index reference period for the SLCIs is the 2011-12 financial year

Interest Charges

Costs associated with mortgage loans or credit, included in the SLCIs but excluded from the CPI

Points Contributions

Refers to how individual items or expenditure categories contribute to the overall percentage change in an index

Selected Living Cost Indexes (SLCI)

A series of indexes designed to measure the impact of price change on the purchasing power of the different household types in Australia