ABS Revises CPI Weightings, Will They Lead the Measure Lower?

The Australian Bureau of Statistics has now released their paper which describes the changes that will be made to the Consumer Price Index (CPI) and Selected Living Cost Indexes (SLCIs) as a result of the introduction of the 17th series expenditure patterns.

There are quite a number of technical changes, as well as different weights for specific items. Housing and power costs for example will be higher. From 2018, the CPI will be re–weighted annually in December quarters

This is likely to lead to a lower headline CPI rate, perhaps by around 0.25% or more (DFA estimate), though there are various offsetting adjustments, so we cannot be sure.  More noise in the numbers!

The first publications based on the 17th series will be in respect of the December quarter 2017, which are due to be released on 31 January 2018 (CPI) and 7 February 2018 (SLCIs).

Australia has produced indexes of retail price inflation going back as far as 1901. Prior to the introduction of the CPI in 1960, there were five series of retail price indexes compiled by the (then) Commonwealth Bureau of Census and Statistics. Since 1960, the Australian Bureau of Statistics (ABS) has maintained a program of periodic reviews of the CPI to ensure that it continues to meet community needs. The main objective of these reviews is to update the household expenditure information used to set the item weights in the CPI, but they also provide an opportunity to reassess the scope and coverage of the index.

The SLCIs, incorporating the Pensioner and Beneficiary Living Cost Index (PBLCI) and the Analytical Living Cost Indexes (ALCIs) have also been reviewed as part of the 17th series. These indexes are produced as a by-product of the CPI, with weights also derived from the Household Expenditure Survey (HES).

The 17th series review is a minor review of the CPI and SLCIs, consisting of an update of the upper level (expenditure class) weights in line with the latest HES, and a simple examination of structures and methodologies.

This information paper provides an overview of the changes to the CPI and SLCIs that will be introduced with the 17th series from the December quarter 2017. It describes the household expenditure data used to calculate the weights and the ways in which some of the data have been adjusted to align with CPI and SLCI requirements. The paper also presents the updated weighting patterns and some background on the major shifts in weights between the 16th and 17th series. There are no changes to the classification structure or publications in respect of the 17th series.

They also continue to explore options for a more frequent and timely monthly measure.

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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