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# Glossary

Consumer Price Index: Concepts, Sources and Methods
Reference period
2018
Released
27/02/2019
Next release Unknown
First release

### Acquisitions approach

The acquisitions approach defines the basket of goods and services as consisting of all those consumer goods and services actually acquired by households during the base period. See also Cost of Use approach and Outlays approach.

The value of an aggregate is identical to the sum of the values of its components.

### Aggregation

The process of combining lower level price indexes to produce higher level indexes.

### All groups

Highest level of the CPI, containing all the groups, subgroups and expenditure classes.

### Arithmetic mean of price relatives (APR)

An elementary price index defined as a simple, or un-weighted, arithmetic average of the sample price relatives. Also known as the Carli price index.

### Australian Prudential Regulation Authority (APRA)

The Australian Prudential Regulation Authority is a statutory authority of the Australian Government and the prudential regulator of the Australian financial services industry.

### Axiomatic approach

The approach to index number theory that determines the choice of index number formula on the basis of its mathematical properties.

### Base period

The base period is usually understood to mean the period with which all the other periods are compared.

A specified set of quantities of goods and services consumed by an average household. The CPI basket of goods and services refers to the goods and services in the basket; how much of each good or service is in the basket; and a specified level of quality of each good or service.

### Bias

A systematic tendency for the calculated CPI to diverge from some ideal or preferred index, resulting from the method of data collection or processing, or the index formula used.

### Chain drift

Where the index fails to return to parity after prices and quantities revert back to their original values. Caused by quantities spiking when consumers stock up goods that are on sale, and not returning to their normal level immediately after the sales period.

Joining together two indexes that overlap in one period by rescaling one of them to make its value equal to that of the other in the same period, thus combining them into a single time series. More complex methods may be used to link together index that overlap by more than period. Also known as “chaining”. See Re-referencing and linking price indexes of this manual for more information.

### Circularity (often called transitivity)

This is a multi-period test (essentially a test of chaining). It requires that the multiplication of the price index obtained by going from period 0 to period 1 and from period 1 to 2 is the same as going directly from period 0 to period 2.

### Classification of Individual Consumption by Purpose (COICOP)

The classification of individual consumption by purpose is a classification used to classify both individual consumption expenditure and actual individual consumption. It is a part of the System of National Accounts 2008 and is maintained by the United Nations Statistics Division.

### Commensurability

This test requires that if the units of measurement of the item are changed (e.g. from kilograms to tonnes), then the price index should not change.

### Component

A category, grouping or an individual item under an index, for example, 'Bread' is a component at the expenditure class level, while 'Food and non-alcoholic beverages' is a component at the group level.

### Consumer Price Index (CPI)

Consumer Price Index - a general indicator of the rate of change in prices paid by households for consumer goods and services.

### Cost of living index

A measure of the change in household income required to maintain a constant level of utility.

### Cost of use approach

The cost of use approach defines the basket as consisting of all those consumer goods and services actually consumed (or used up) in the base period, regardless of when they were acquired or paid for. See also Acquisitions approach, Outlays approach.

### Coverage

The set of goods and services of which the prices are actually included in the basket.

A commonly used term for the goods and services priced for the purpose of compiling the CPI.

### CPI population group

The subset of the Australian population to which the CPI specifically relates. For the 17th series CPI this is all metropolitan private households.

### Current period

The most recent period for which the index has been compiled. It is often referred to as the comparison period, which is the period that is compared to the base period.

### Delphi method

A method used to assess the value and utility consumers place on the change to the quality of a good or service. In this approach a panel of experts are asked to provide an estimate of the average and likely range of quality (expressed in dollars) placed on an aspect of a good or service. The median of responses is taken to guide the quality adjustment used in pricing goods and services whose quality changes between periods. See also Quality adjustment and Quality change and new products of this manual.

### Elementary aggregate

The lowest level of commodity classification in the CPI, and the only level for which index numbers are constructed by direct reference to price data. The range of goods and services covered by an elementary aggregate should be as homogeneous as possible.

### Expenditure aggregate

The current cost in dollars per year of purchasing the same quantity of goods and services that were purchased in the weighting base period by the CPI population group.

### Expenditure class

A group of similar goods or services (i.e. products). The level at which weights are fixed for the life of an index series, and the lowest level for which indexes are regularly published. There are eighty-seven expenditure classes in the 17th series CPI.

### Fisher price index

The geometric average of the Laspeyres price index and the Paasche price index. It is a symmetric and superlative index.

### Geometric mean of price relatives (GM)

An elementary price index defined as the un-weighted geometric average of the sample price relatives. Also known as the Jevons price index.

### Gini, Eltetö, Köves and Szulc (GEKS)

A multilateral method used for spatial/temporal price comparisons across three or more entities. The GEKS method takes the geometric mean of the ratios of all bilateral indexes (calculated using the same index number formula) between a number of entities.

### Goods and Services Tax (GST)

An ad valorem tax applied to supplies (goods and services produced or delivered) by registered suppliers engaged in taxable activity. The GST is effectively only paid by final consumers. The current legislated rate of GST is 10 per cent.

Total premiums payable by policy holders for general insurance.

### Group

The first level of disaggregation of the CPI. There are eleven groups in the 17th series CPI.

### Harmonised Indices of Consumer Prices (HICP)

An index structure devised and used by the European Union.

### Hedonic model

A technique used for quality adjustment where a relationship between a product's price and the characteristics it contains is estimated.

### Household Expenditure Classification (HEC)

The classification used to analyse the results of the Household Expenditure Survey.

### Household Expenditure Survey (HES)

A sample survey conducted by the ABS to determine the expenditure patterns of private households. Data from the 2015-16 HES are the primary source of information for the expenditure weights for the 17th series CPI.

### Household Final Consumption Expenditure (HFCE)

Household Final Consumption Expenditure measures expenditure by resident households on goods and services, whether the expenditure is made within the domestic territory or by Australian residents abroad, and expenditure by Non-Profit Institutions Serving Households (NPISH). Conceptually, the measurement of HFCE aligns closely with the HES: data cover expenditure by Australian households only and exclude expenditure by non-residents in Australia.

### Implicit Price Deflator (IPD)

This is a derived price measure from the National Accounts. An implicit price deflator is obtained by dividing a current price value by its real counterpart (the chain volume measure). When calculated from the major national accounting aggregates such as GDP, IPDs relate to a broader range of goods and services in the economy than that represented by any of the individual price indexes (such as CPIs, PPIs).

Movements in an implicit price deflator reflect both changes in price and changes in the composition of the aggregate for which the deflator is calculated.

### Indexation

The periodic adjustment of a money value according to changes in a price index.

### Index reference period

The period in which the index is given a value of 100.0. The CPI is currently on a index reference period of 2011-12.

### Inflation

A term commonly used to refer to changes in price levels. A rise in prices is called inflation, and a fall is called deflation.

### International Labour Organization (ILO)

The International Labour Organization is a United Nations agency dealing with labour issues, particularly international labour standards, social protection, and work opportunities for all.

### Laspeyres price index

A price index which is obtained from the ratio of the revalued basket to the total price of the basket in the first period. The basket is composed of the actual quantities of goods and services in the earlier of the two periods compared.

A ratio used to join a new index series to an old index series to form a continuous series.

The link period is the quarter in which the index is calculated on both the old weights and structure and the new weights and structure. In the CPI, the link period usually follows the completion of the Household Expenditure Survey (HES), which currently runs once every 6 years. The weights in the CPI are updated during the link period to reflect the new expenditure data in the HES. The link period for the 17th series CPI is September quarter 2017.

### Living cost index

A living cost index reflects changes over time in the purchasing power of the after-tax incomes of households. It measures the impact of changes in prices on the out-of-pocket expenses incurred by households to gain access to a fixed basket of consumer goods and services.

### Lowe price index

A price index that measures the proportionate price change between periods $$0$$ and $$t$$ in the total value of a specified basket of goods and services, where quantities are fixed in some earlier period $$b$$. Most statistical offices make use of some form of Lowe price index in practice.

### Matched sample

In a matched sample, items that are priced from period to period are identical in all respects.

### Metropolitan

For purposes of the CPI, metropolitan refers to the six State capital cities, as well as Darwin and Canberra.

### Multilateral price index

Multilateral index numbers are often used for spatial price and output comparisons across economic entities (e.g. countries). In a temporal context, multilateral index numbers make price comparisons across more than two time periods.

### National standard

Refers to the type of specifications for which a product is being priced. These products are available in all capital cities, and at the vast majority of respondent outlets. They can be readily and clearly defined by characteristics such as make, model, and size as a specification for use nationally. ABS staff have no latitude in choosing the product for pricing. An example is motor vehicles. See also Respondent standard.

The component which includes the products not classified as tradable. The tradables component comprises all items whose price change is largely determined on the world market. An item is defined as tradable if a significant proportion of its domestic output is exported or if a significant proportion of its demand for domestic consumption is imported. In addition, products are defined as non-tradables where domestic taxes or subsidies make a significant contribution to the price paid by consumers.

### Outlays approach

The outlays (or payments) approach defines the basket in terms of the actual amounts paid out by households during the base period to gain access to consumer goods and services. See also Acquisitions approach, Cost of use approach.

### Paasche price index

A price index which is obtained from the ratio of the total price of the basket in the second period compared to the total price of the basket valued at the first period’s prices. The basket is composed of the actual quantities of goods and services in the later of the two periods compared.

### Price bouncing

The situation where there is considerable volatility in prices; for example, due to seasonal factors or sales competition.

### Price index

A composite measure of the prices of items expressed relative to a defined base period.

### Price levels

Actual money values at a particular time.

### Price movements

Changes in price levels between two or more periods. Movements can be expressed in money values, as price relatives, or as percentage changes.

### Price reference period

The period that provides the prices to which the prices in other periods are compared. The price reference period for the 17th series CPI is the September quarter 2017.

### Price relative

A measure of price movements: the ratio of the price of an individual product in one period to the price of that same product in some other period.

### Price updating

A procedure whereby the expenditures in an earlier period are revalued at the prices of a later period. For the 17th series CPI, the 2015-16 expenditure weights were price updated to the September quarter 2017 price reference period.

### Private households

Households living in private dwellings. Private dwellings exclude prisons, nursing homes for the aged, defence establishments, hospitals, and other communal dwellings.

### Purchaser's price

The amount paid by the purchaser to acquire a good or service, inclusive of any non-deductible taxes on products, transport and trade margins.

### Pure price change

The change in the price of a good or service of which the characteristics are unchanged; or the change in the price after adjusting for any change in quality.

### Quality adjusted unit value (QAUV) index

A multilateral method used for spatial/temporal price comparisons across three or more entities. The QAUV index expresses the quantity of products into common units, and then calculates a unit value across all products. Ratios of these 'standardised' unit values are then used to measure price change over time.

The elimination of the effect that changes in the quality or composition of an item have on the price of that item in order to isolate the pure price change. This is done in the form of an adjustment to the change in the price of an item of which the characteristics change over time that is designed to remove the contribution of the change in the characteristics to the observed price change.

### Relative of average prices (RAP)

An elementary price index defined as the ratio of the un-weighted arithmetic averages of the prices in the two periods compared. Also known as the Dutot price index.

### Respondent standard

Refers to the type of specifications for which a product is being priced. These products can be readily defined by form and function, but a multitude of brands and models may exist making it impossible to guarantee that any one example of the product will be available Australia wide. A generic description is provided in sufficient detail to ensure that ABS staff will be able to locate an example of the product. See also National standard.

A process by which the systematic and calendar related influences are estimated and then removed from a time series. Examples of such influences include holidays, weather patterns and administrative dates such as annual education fee increases.

### Spatial price index

A spatial index compares the relative differences in prices between geographic locations, at the same point in time.

### Splicing

A technique used to introduce new items or respondents into the index calculations so that the level of the index is not affected.

### Sub-group

A collection of related expenditure classes. There are thirty three sub-groups in the 17th series CPI.

### Superlative price index

A superlative index is one of a small group of indexes that makes equal use of prices and quantities, and treats them in a symmetric manner in each pair of periods under observation. Examples are the Fisher Index and the Törnqvist Index. Superlative indexes require both price and expenditure values for all periods.

### System of National Accounts (SNA)

A coherent, consistent and integrated set of macro-economic accounts, balance sheets and tables based on a set of internationally agreed concepts, definitions, classifications and accounting rules.

### Temporal price index

A temporal price index measures price change over time.

### The New Tax System (TNTS)

A package of changes to the taxation and social-welfare system including the introduction of GST, and the changes to business taxation announced in response to the review of business taxation.

### Time Product Dummy (TPD)

A multilateral method used for temporal price comparisons across three or more entities. The TPD method is a regression approach that uses the statistical relationship between prices, products and time to directly estimate price change overtime.

### Törnqvist price index

A price index, which is a weighted geometric mean of the price relatives where the weights are the average shares of total values in the two periods. It is a symmetric and superlative index.

The tradables component comprises all products whose price change is largely determined on the world market. A product is defined as tradable if a significant proportion of its domestic output is exported or if a significant proportion of its demand for domestic consumption is imported. The non-tradable component consists of the remaining commodities.

### Transactions data

Also known as scanner data. An economic flow that is an interaction between institutional units by mutual agreement. In the case of the CPI, transactions data are the prices actually paid by consumers to acquire goods and services.

See circularity.

### Unit value

Calculated by dividing a product's revenue by the quantity sold. A product's unit value represents the average price paid by consumers over a certain period of time, e.g. one month or one quarter.

### Utility

Often defined as the satisfaction derived from consumption of a good or service.

### Value

Price times quantity - can also be referred to as expenditure in a CPI context.

### Web scraping

An automated process that collects online prices.

### Weight

The measure of the importance of an item relative to the other items within the index. Weights can be expressed in either quantity or value terms. Value weights are used in the Australian CPI.

### Weight reference period

The period, usually one or more years, of which the expenditures serve as weights for the index. The weight reference period for the 17th series CPI is 2015-16.