The Australian Bureau of Statistics changes the index reference period (a process known as re-referencing) for its suite of price indexes from time to time, but not frequently. This is because frequently changing the index reference period is inconvenient for users, particularly those who use price indexes for contract escalation, as it rebases the index reference period back to 100.0. Additionally, the process of re-referencing can result in the loss of precision for historic data, especially for time series with a significant historical timeseries.
Re-referencing in practice
The conversion of an index series from one index reference period to another involves calculating a conversion factor using the ratio between the two series of index numbers. The derived conversion factor is applied to the historical series to create a new historical series on the new reference period.
In this example, an update to the index reference period of an index series is required to be made from an index reference period of 1998-99 = 100.0 to 2011-12 = 100.0 (see Table 3.9 below).
The average value of the price index series from the index reference period of 1998-99 is (150.2 + 150.7 + 151.1 + 152.2)/4 = 151.1. (rounded to one decimal place).
A conversion factor is then derived by diving the rounded average value by 100 (100.0/151.1) to produce the value of 0.6620.
The March quarter 2011 index number for the new index reference period of 2011-12 = 100.0 would be the value of the current March quarter 2011 index value (147.0) multiplied by the derived conversion factor (0.6620), which would be 97.3 (147.0×0.6620).
Table 3.9 Converting index reference periods
|Index reference period(a)|
|Mar qtr 2011||147||97|
|Jun qtr 2011||150||99|
|Sep qtr 2011||150||99|
|Dec qtr 2011||151||100|
|Mar qtr 2012||151||100|
|Jun qtr 2012||152||101|
|Financial year 2011-12||151||100|
|Sep qtr 2012||153||101|
|Dec qtr 2012||153||102|
|Mar qtr 2013||153||102|
|Jun qtr 2013||154||102|
|Sep qtr 2013||156||103|
|Dec qtr 2013||157||104|
(a) Conversion factor: 1998-99 index reference period to 2011-12 index reference period = 100.0/151.1 = 0.6620.
A similar process would be used to reconvert the data back from the 2011-12 index reference period to the 1998-99 index reference period.
If the December quarter value for 2012 of a price index was 103.6 which, when multiplied by the conversion factor of 1.511 (151.1/100.0), would give an index number of 156.5 on the index reference period of 1998-99 = 100.0.
It should be noted that a different conversion factor will apply for each index. There is no universal conversion factor for all Producer and International Trade Price Indexes.
Please note that re-referencing should not be confused with reweighting. Re-referencing does not change the relative movements between periods. However, reweighting involves introducing new weights and recalculating the aggregate index for each period which will affect the relative movements between periods.
Implications of re-referencing on the timeseries
As stated above, the process of re-referencing can have an impact on the precision of long-term historical time-series. This issue arises as a result of the ABS rounding and storing published price indexes to one decimal place.
Published percentage changes to index numbers are calculated from the rounded index numbers. A consequence of re-referencing price indexes can be that period-to-period percentage changes may differ to those previously published due to rounding of the re-referenced values. These differences do not constitute a revision.
As re-referencing is conducted to account for substitution in the marketplace, the evolution of pricing methods and the emergence of new products. Re-referencing is not performed frequently as changing the index reference period is problematic for users, particularly those who use the Producer and International Trade Price for contract escalation.
The ABS last re-referenced the Producer and International Trade Price Indexes in the September quarter 2012 with the index reference period of the 2011-12 Financial Year = 100.0