Consumer prices in the Monthly Statistical
Bulletin
The Monthly statistical bulletin has traditionally reported the
Australian Bureau of Statistics (ABS) measure of consumer
prices—the Consumer Price Index (CPI). Starting with the
October 2009 edition, Table 2.4 will be expanded to include a
measure of ‘underlying’ or ‘core’
inflation, based on statistical manipulations of the CPI designed
by the Reserve Bank of Australia (RBA).
Consumer prices generally
The CPI measures the relative cost of a basket of goods and
services purchased by capital city households. The basket includes
up to 100 000 goods and services allocated to 11 categories,
consisting of 90 expenditure classes. These classes are weighted in
terms of their relative importance in households’ budgets.
The basket is updated every five years to incorporate changes in
the composition of household purchases.
Changes in the CPI measure inflation in Australia, and this
measure is often referred to as ‘headline
inflation’.
Reserve Bank measures
Headline inflation incorporates price classes which change by
large magnitudes for reasons other than a shift in value. For
example, fruit is seasonal and also can be affected by extreme
weather events, both of which affect availability and therefore the
price paid by consumers.
To address this issue, the RBA created measures which smooth
these volatile fluctuations to try and estimate a
‘core’ or ‘underlying’ rate of inflation.
These measures are the ‘trimmed mean’ and
‘weighed median’.
Basically, the trimmed mean is calculated in stages.
First, the percentage changes in all CPI classes are ordered by
their relative size. Then, the top and bottom 15 per cent of
classes, by percentage price movement, are excluded from
consideration. Finally, the remaining middle 70 per cent of classes
are used to create a weighted average, or ‘mean’.
The weighted median is effectively a secondary measure.
The middle 70 per cent of classes from the trimmed mean process is
the benchmark set of data. The weighted median measure is the
price change observation that is in the middle of this benchmark
set of data.
In public reporting it is typical that the changes in these two
measures are averaged to provide the estimate of core inflation.
This convention has been adopted in this bulletin.
The underlying or core rates of inflation are important as they
are, typically, the rates considered by the Board of the RBA when
they pursue an ‘average two to three per cent’
inflation rate target, using monetary policy instruments like the
overnight cash interest rate.
An example of observed differences
Graph 1 compares quarterly changes in the average of the RBA
measures and the CPI. The key point is that the RBA average
tends to be smoother than the CPI changes and, therefore, is much
more like a trend rate of change.
Graph 1: Quarterly change in prices—RBA and
ABS
Monthly statistical bulletin Table 2.4
The bulletin print edition Table 2.4
has been updated to include index values, quarterly and annual
changes for the CPI, as well as the average of the annual
underlying rates of inflation. The print edition graph will show
the annual underlying and headline rates of inflation including a
visual identification of the 2-3 per cent RBA inflation target
range. In addition, the electronic database will report both
of the RBA measures in more detail.
Changes to retail
trade
The ABS implemented changes to the
scope of the retail trade survey in its July Retail Trade
publication.
The changes resulted from adopting a
revised set of Australian New Zealand Standard Industrial
Classifications (ANZSIC). ANZSIC 2006 changed the definitions of
some industries compared to its predecessor, ANZSIC 1993. In
addition, some activities which were retailing were transferred
into alternative classifications and some activities which were not
previously retailing were bought into scope.
The data in the Retail Trade
publication are reported on the new ANZSIC categories. The effect
is a consistent upward shift in monthly retail trade. The
changes were backcast to April 1982. Further changes have been
foreshadowed, including publication of trend estimates and a change
in seasonal weighting patterns. When these changes occur further
revisions to this bulletin may also be required.
Table 4.1, in the print and
electronic editions, has been updated to include retail trade data
based on the revised ANZSIC basis. This means that data in Table
4.1 of this edition of the bulletin should not be compared to
earlier print or electronic editions, as the data are
inconsistent.
Adrian
Makeham-Kirchner
Statistics and Mapping
Section
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