Consumer Price Index, Australia methodology

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Reference period
September 2021
Released
27/10/2021

Explanatory notes

Brief description of the CPI

The Consumer Price Index (CPI) measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households). This 'basket' covers a wide range of goods and services, arranged in the following eleven groups:

  • Food and non-alcoholic beverages
  • Alcohol and tobacco
  • Clothing and footwear
  • Housing
  • Furnishings, household equipment and services
  • Health
  • Transport
  • Communication
  • Recreation and culture
  • Education
  • Insurance and financial services.

Capital city indexes used by the CPI are based on the 2011 Australian Statistical Geography Standard (ASGS) Greater Capital City Statistical Areas. The capital city indexes measure price movements over time in each city individually. They do not measure differences in retail price levels between cities.

Further information about the CPI is contained in Consumer Price Index: Concepts, Sources and Methods (cat. no. 6461.0).

Prices

The frequency of price collection by item varies as necessary to obtain reliable price measures. Prices of some items are volatile (i.e. their prices may vary many times each quarter) and for these items frequent price observations are necessary to obtain a reliable measure of the average price for the quarter. Each month prices are collected at regular intervals for goods such as alcohol, men's and women's clothing, project homes, motor vehicles, petrol and holiday travel and accommodation. There are a few items where prices are changed at infrequent intervals, for example education fees where prices are set once a year. In these cases, the frequency of price collection is modified accordingly. 

In order to facilitate a more even spread of field collection workload, the number of items for which prices are collected quarterly is distributed roughly equally across each month of each quarter. In all cases, however, individual items are priced in the same month of each quarter. For example, items for which prices are collected in the first month of the September quarter, July, are also priced in the first month of subsequent quarters, namely October, January and April.

The Australian Bureau of Statistics (ABS) uses a variety of sources to collect CPI prices, such as visiting businesses, online collection, telephone surveys, and administrative data. To efficiently collect prices online, the ABS uses automated website data collection, referred to as 'web scraping'. Further information is discussed in Web Scraping in the CPI. In the case of transactions data, revenue and quantity data are collected on a weekly basis. For most other items, price volatility is not a problem and prices are collected once a quarter. 

Weighting pattern

There are 87 expenditure classes (that is, groupings of like items) in the 17th series CPI and each expenditure class has its own weight, or measure of relative importance. In calculating the index, price changes for the various expenditure classes are combined using these weights.

Changes in the weighting pattern have formerly been made at approximately six yearly intervals to take account of changes in household spending patterns. From the introduction of the 17th series CPI in December quarter 2017, the weights are now updated annually. The Household Expenditure Survey (HES) is used to re-weight the CPI in the years where 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 for updating the weights. The CPI now comprises seventeen series of price indexes which have been linked to form a continuous series. The current weighting patterns for the CPI for the weighted average of the eight capital cities and for each of the eight capital cities are published in Information Paper: Introduction of the Consumer Price Index Weight Update, 2019 (cat. no. 6470.0.55.002). The historical weighting patterns for the CPI are published in Consumer Price Index: Historical Weighting Patterns, 1948 - 2017 (cat. no. 6431.0). Both publications are available on the ABS website http://www.abs.gov.au.

Analysis of CPI changes

Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. The following example illustrates the method of calculating changes in index points and percentage changes between any two periods: 

All groups CPI: Weighted average of eight capital cities. Index numbers: 

June Quarter 2021 = 118.8
Less June Quarter 2020 = 114.4
Change in index points = 4.4
Percentage change = 4.4/114.4 x 100 = 3.8%

Percentage changes are calculated to illustrate three different kinds of movements in index numbers:

Percentage changes are calculated to illustrate three different kinds of movements in index numbers:

  • movements between consecutive financial years (where the index numbers for financial years are simple averages of the quarterly index numbers)
  • movements between corresponding quarters of consecutive years
  • movements between consecutive quarters.

Table 7 provides a detailed analysis, for the weighted average of eight capital cities, of movements in the CPI since the previous quarter, including information on movements for groups, sub-groups and expenditure classes. It also shows the contribution which each makes to the total CPI. For instance, the dairy and related products sub-group contributed 1.11 index points to the total All groups index number of 113.5 for the September Quarter 2018. The final column shows contributions to the change in All Groups index points by each group, sub-group and expenditure class.

Analytical series

Various series are presented in Table 8 in this publication to assist users analyse the CPI. Some of the analytical series are compiled by taking subsets of the CPI basket, and most are self-explanatory, such as 'All groups CPI excluding food and non-alcoholic beverages'. (A complete list of CPI groups, sub-groups and expenditure classes is contained in Tables 6 and 7). Other series and their composition are described below:

  • All groups CPI, seasonally adjusted: Comprises all components included in the All groups CPI, seasonally adjusted where seasonality has been identified at the weighted average of eight capital cities level. Seasonal adjustment factors are calculated using the history of price changes up to the current quarter CPI and are revised each quarter.
    • Where CPI expenditure classes are identified as having a seasonal pattern, quarterly price changes are estimated on a seasonally adjusted basis. At the introduction of the 17th series, 57 out of the 87 expenditure classes were classified as seasonal. A description of which series are currently seasonally adjusted is published in the Appendix of every December quarter issue of Consumer Price Index, Australia (cat. no. 6401.0), following the annual seasonal reanalysis.
  • Underlying trend series, 'Trimmed mean' and 'Weighted median': These are two analytical measures of trend inflation calculated from the June quarter 2002 using standard ABS seasonal adjustment techniques. For more information see the Information Paper: Seasonal Adjustment of Consumer Price Indexes (cat. no. 6401.0.55.003). The trimmed mean and weighted median are calculated using the distribution of expenditure classes each quarter derived as follows:
    • The CPI expenditure classes are ranked from lowest to highest according to the seasonally adjusted percentage change from the previous quarter.
    • The seasonally adjusted relative weight of each expenditure class is calculated based on its previous quarter contribution to the All groups CPI.
    • The 'Trimmed mean' is calculated by using a weighted average of percentage change from the previous quarter (seasonally adjusted) from the middle 70 per cent of the distribution.
    • The 'Weighted median' is calculated using the percentage change from the previous quarter (seasonally adjusted) expenditure class at the 50th percentile of the distribution.
  • International Trade Exposure series, Tradables component: Comprises all items whose prices are largely determined on the world market. For more information, see paragraph 12 below.
  • International Trade Exposure series, Non-tradables component: Comprises all items not included in the Tradables component.
  • All groups CPI, goods component: Comprises the food and non-alcoholic beverages group (except restaurant meals); alcohol and tobacco group; clothing and footwear group (except cleaning, repair and hire of clothing and footwear); furnishings, household equipment and services group (except domestic and household services sub-group); utilities, audio, visual and computing equipment and services, and newspapers, books and stationery sub-groups; and new dwelling purchase by owner-occupiers, pharmaceutical products, motor vehicles, automotive fuel, spare parts and accessories for motor vehicles, equipment for sports, camping and open-air recreation, games, toys and hobbies and pets and related products expenditure classes.
  • All groups CPI, services component: Comprises all items not included in the 'All groups CPI, goods component'. A description of which series are goods or services is published in the Appendix of the December quarter 2017 issue of Consumer Price Index, Australia (cat. no 6401.0).
  • All groups CPI including deposit and loan facilities (indirect charges): One of the outcomes of the 16th series CPI Review was to remove the indirectly measured component of the deposit and loan facilities index from the headline CPI but to include it in a new analytical series. This index includes the 17th series All groups CPI plus the indirectly measured component of the deposit and loan facilities index.
  • Market goods and services excluding 'volatile items': in addition to the items excluded from the series 'All groups CPI excluding 'volatile items', also excludes: utilities, property rates and charges, child care, health, other services in respect of motor vehicles, urban transport fares, postal services, and education.
  • All groups CPI excluding insurance and financial services: Reflecting the changing composition of the CPI, from the September quarter 1989 to the June quarter 1998, comprises the All groups CPI excluding house insurance, house contents insurance, vehicle insurance and mortgage interest charges and consumer credit charges; from the September quarter 1998 to the June quarter 2000 comprises the All groups CPI excluding house insurance, house contents insurance and vehicle insurance; from the September quarter 2000 to the June quarter 2005 comprises the All groups CPI excluding insurance services; from the September quarter 2005 to the June quarter 2011 comprises the All groups CPI excluding financial and insurance services; from the September quarter 2011 comprises the All groups CPI excluding insurance and financial services.
  • All groups CPI excluding housing and insurance and financial services: Reflecting the changing composition of the CPI, from the September quarter 1989 to the June quarter 1998, comprises the All groups CPI excluding housing, house contents insurance, vehicle insurance and consumer credit charges; from the September quarter 1998 to the June quarter 2000 comprises the All groups CPI excluding housing, house insurance, house contents insurance and vehicle insurance; from the September quarter 2000 to the June quarter 2005 comprises the All groups CPI excluding housing and insurance services; from the September quarter 2005 to the June quarter 2011 comprises the All groups CPI excluding housing and financial and insurance services; from the September quarter 2011 comprises the All groups CPI excluding housing and insurance and financial services.
  • All groups CPI excluding food and energy: Comprises the All groups CPI excluding the food and non-alcoholic beverages group (except restaurant meals); electricity, gas and other household fuels; and automotive fuel.
  • All groups CPI excluding 'volatile items': Comprises the All groups CPI excluding fruit and vegetables and automotive fuel.

The International Trade Exposure series was reviewed and updated for the December quarter 2016. There were eight changes of classification outlined in the September quarter 2016 feature article 'Review of the Consumer Price Index International Trade Exposure Series' (cat. no. 6401.0): breakfast cereals; waters, soft drinks and juices; gas and other household fuels; therapeutic appliances and equipment; and newspaper, magazines and stationery were reclassified from non-tradables to tradables: and spirits; tobacco; and pharmaceutical products were reclassified from tradables to non-tradables. These changes are included from the December quarter 2016. The historical tradables and non-tradables series will not be revised. A description of which expenditure classes are tradables or non-tradables is published in the Appendix of the December quarter 2017 issue of Consumer Price Index, Australia (cat. no 6401.0).

Rounding

Published index numbers, except for the underlying trend series, are rounded to one decimal place. Percentage change movements are calculated from the index numbers and then rounded to one decimal place. Rounding errors can occur, causing discrepancies (e.g. when calculating percentage changes of aggregates and their components). Underlying trend series, 'Trimmed mean' and 'Weighted median' index numbers are published to four decimal places. Percentage change movements are calculated from the published index numbers and rounded to one decimal place.

Seasonally adjusted indexes

Seasonally adjusted estimates are derived by estimating and removing systematic calendar related effects from the original series. In most economic data these calendar related effects are a combination of the classical seasonal influences (e.g. the effect of the weather, social traditions or administrative practices such as government charges increasing on 1 July each year) plus other kinds of calendar related variations, such as Easter or the proximity of significant days in the year (e.g. Christmas). In the seasonal adjustment process, both seasonal and other calendar related factors evolve over time to reflect changes in activity patterns. The seasonally adjusted estimates reflect the sampling and non-sampling errors to which the original estimates are subject.

The CPI uses a concurrent seasonal adjustment methodology to derive the adjustment factors. This method uses the original time series available at each reference period to estimate seasonal factors for the current and previous quarters. Concurrent seasonal adjustment is technically superior to the more traditional method of reanalysing seasonal patterns once each year because it uses all available data to fine tune the estimates of the seasonal component each quarter. With concurrent analysis, the seasonally adjusted series are subject to revision each quarter as the estimates of the seasonal factors are improved. In most instances, the only significant revisions will be to the combined adjustment factors for the previous quarter and for the same quarter in the preceding year as the reference quarter (i.e. if the latest quarter is June quarter 2018 then the most significant revisions will be to March quarter 2018 and June quarter 2017). The seasonal patterns are also reanalysed on an annual basis or when there are known changes to regular events. This can lead to additional revisions.

Autoregressive integrated moving average (ARIMA) modelling can improve the revision properties of the seasonally adjusted and trend estimates. ARIMA modelling relies on the characteristics of the series being analysed to project future period data. The projected values are temporary, intermediate values, that are only used internally to improve the estimation of the seasonal factors. The projected data do not affect the original estimates and are discarded at the end of the seasonal adjustment process. From the December quarter 2012, the Consumer Price Index uses ARIMA modelling where appropriate for individual time series. The ARIMA model is assessed as part of the annual reanalysis. For more information on ARIMA modelling see Feature article: Use of ARIMA modelling to reduce revisions in the October 2004 issue of Australian Economic Indicators (cat. no. 1350.0).

The ABS applies seasonal adjustment to the expenditure class components of the CPI which are found to be seasonal, and then aggregates the seasonally adjusted and non-seasonally adjusted components to calculate the All groups CPI, seasonally adjusted, Trimmed mean and Weighted median estimates. The seasonally adjusted expenditure class components are available in Table 13 - CPI expenditure classes and selected analytical series, seasonally adjusted index numbers, weighted average of eight capital cities. The seasonal factors used to derive these seasonally adjusted indexes are available in Table 14 - CPI expenditure class, combined seasonal adjustment factors, weighted average of eight capital cities. For more information about seasonal adjustment of the CPI please refer to Information Paper: Seasonal Adjustment of Consumer Price Indexes (cat. no. 6401.0.55.003).

International comparisons

In analysing price movements in Australia, an important consideration is Australia's performance relative to other countries. However, a simple comparison of All groups (or headline) CPIs is often inappropriate because of the different measurement approaches used by countries for certain products, particularly housing and financial and insurance services. To provide a better basis for international comparisons, the 17th International Conference of Labour Statisticians adopted a resolution which called for countries to 'if possible, compile and provide for dissemination to the international community an index that excludes housing and financial services' in addition to the all-items index.

Revisions

CPI original indexes are revised only in exceptional circumstances, such as to correct a significant error. As is the case with all price indexes, the index reference period (i.e. the period in which the index is set equal to 100.0) will be changed periodically. The index number levels for all periods will be changed by this process and it may also result in differences, due to rounding, between the percentage changes published on the old base and those on the new base. Seasonally adjusted indexes (including the Trimmed mean and Weighted median) for some quarters will be revised as extra quarters are included in the series analysed for seasonal influences (see paragraphs 14 to 17).

Related publications

Current publications and other products released by the ABS are listed on the ABS website http://www.abs.gov.au. The ABS also issues a daily Release Advice on the website which details products to be released in the week ahead.

Users may also wish to refer to the following publications and other data products that are available free of charge from the ABS website:

Data available

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    Quality declaration

    ​​​​​​​Institutional environment

    For information on the institutional environment of the Australian Bureau of Statistics (ABS), including the legislative obligations of the ABS, financing and governance arrangements, and mechanisms for scrutiny of ABS operations, please see ABS Institutional Environment.

    Relevance

    The Australian Consumer Price Index (CPI) is conceptually designed to provide a general measure of price inflation for all Australian households. In practice, the index is constrained to only measure the changes in prices faced by private households living in the six State and two Territory capital cities.

    The simplest way of thinking about the CPI is to imagine a basket of goods and services comprising items bought by Australian households. Now imagine the basket is purchased each quarter. As prices change from one quarter to the next, so too will the total price of the basket. The CPI is simply a measure of the changes in the price of this fixed basket as the prices of items in it change.

    The total basket is divided into 11 major groups, each representing a specific set of commodities:

    • Food and non-alcoholic beverages
    • Alcohol and tobacco
    • Clothing and footwear
    • Housing
    • Furnishings, household equipment and services
    • Health
    • Transport
    • Communication
    • Recreation and culture
    • Education
    • Insurance and financial services.

    In the case of the Australian CPI, this methodology involves devising a basket of goods and services representative of those acquired by metropolitan private households during the course of a full year. The annual basket used in the CPI is based primarily on data obtained from the Household Expenditure Survey (HES), which is an authoritative source of data on the expenditures of different household types in each of the capital cities.

    The CPI is an important economic indicator used in formulating monetary policy and in a wide range of business, economic and social analysis and decision-making.

    Seasonally adjustment is used to produce additional analytical series, such as 'All groups CPI, seasonally adjusted', and the underlying trend series (trimmed mean and weighted median). The seasonally adjusted estimates for the expenditure classes contributing to these analytical series are included in the time series spreadsheets. The headline figure, however, remains as the original estimate of the 'All groups CPI'.

    Timeliness

    The CPI is released each quarter (three months ending March, June, September and December) on the last Wednesday of the month following the end of the reference quarter, depending on public holidays.

    Accuracy

    The overall (or All groups) CPI provides a measure of the average rate of price change. 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 87 CPI expenditure classes are obtained from the HES, which is an authoritative source of data on the expenditures of different household types in each of the capital cities. It is important to understand that the composition of the basket and the relative importance of items in it relate to households as a whole - it represents the expenditures of all in scope households, not the expenditure pattern of an “average household” or of any particular household type or size.

    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.

    In total, almost 900,000 separate price quotations are collected each quarter. The frequency of price collection by item varies as necessary to obtain reliable price measures. Prices of some items are volatile (i.e. their prices may vary many times each quarter) and for these prices frequent price observations are necessary to estimate a reliable average quarterly price.

    The CPI takes account of any changes in the quality of the items priced to ensure that the index reflects only pure price change. Items available in stores are constantly changing. The CPI identifies changes to item specifications and adjusts observed prices to eliminate quality differences.

    The CPI uses a hierarchy of rounding procedures to ensure consistency between published index numbers and percentage changes. However, rounding differences can arise in the "points contributions" published in tables 6, 7 and 8 because of the different levels of precision required in those data. Index numbers are released as final figures at the time they are first published. Revisions have never occurred and will only occur in exceptional circumstances.

    Coherence

    The CPI was first compiled in 1960, with index numbers backcast to 1948. Since its inception in its current form in 1960, reviews of the CPI have usually been carried out at about six-yearly intervals. From the introduction of the 17th series CPI in the December quarter 2017, reviews are conducted annually. Following each review, which involves revising the list of items and their weights, the new series are linked to the old to form a continuous series. This linking is carried out in such a way that the resulting continuous series reflect only price changes and not differences in the composition of the old and new baskets. This approach allows changes in expenditure patterns to be reflected in the CPI. The data are comparable from the start of each data series.

    In analysing price movements in Australia, an important consideration is Australia's performance relative to other countries. However, a simple comparison of All groups (or headline) CPIs is often inappropriate because of the different measurement approaches used by countries for certain products, particularly housing and financial and insurance services. To provide a better basis for international comparisons, the Seventeenth International Conference of Labour Statisticians adopted a resolution which called for countries to 'if possible, compile and provide for dissemination to the international community an index that excludes housing and financial services', in addition to the all-items index.

    Interpretability

    The Consumer Price Index (CPI) publication (cat. no. 6401.0) contains Explanatory Notes that provide information about the structure, weights, data sources and other technical aspects of the series. Further information is available in A Guide to the Consumer Price Index: 17th Series (cat. no. 6440.0). Another useful source is Information Paper: Introduction of the 17th Series Australian Consumer Price Index (cat. no. 6470.0.55.001). More detailed information can also be found in Consumer Price Index: Concepts, Sources and Methods (cat. no. 6461.0).

    Accessibility

    A link to the latest issue of the Consumer Price Index can be found on the ABS home page www.abs.gov.au. Detailed information, including a range of time series spreadsheets, can be found in the data download section on the topic page. For links to data and publications relating to the Consumer Price Index and other prices series, please see the Price Indexes & Inflation topics.

    For inquiries about these and related statistics, contact the Customer Assistance Service via the ABS website Contact Us page. The ABS Privacy Policy outlines how the ABS will handle any personal information that you provide to us.

    Abbreviations

    ABSAustralian Bureau of Statistics
    CPIConsumer Price Index
    n.e.c.not elsewhere classified
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