Current Issues Brief 14 1997-98

CPI: Past, Present and Future

Stephen Barber
Statistics Group
6 April 1998

Contents

Major Issues Summary

Introduction

In the Beginning

Purpose of the CPI

Calculation of the CPI

Latest CPI Review

Outcome of the Review

Consequences of the Review

Appendix A: Weighting pattern for the Consumer Price Index in June quarter 1992

Appendix B: List of goods and services priced for the CPI

Sources

Endnotes

Major Issues Summary

• Retail price indexes, which include the Consumer Price Index (CPI), have been officially produced for the period since 1901.
• These indexes have predominantly been used for compensating wage earners for increases in their living costs and were constructed with this purpose in mind.
• The CPI, which was introduced in 1960, was of a better design than the previous retail price indexes but was still designed primarily for wage determination.
• Since its introduction, the CPI has also been used as a measure of inflation and for indexing payments such as pensions. Both are uses for which it was not designed and for which it is often criticised.
• In the latest review of the CPI the Australian Bureau of Statistics, after public consultation, decided to change the methodology so that the CPI will be closer to a measure of inflation and be more appropriate as a tool for indexation purposes while still being relevant for wage determination.
• The new CPI (the 13^th Series) will be introduced for the September quarter 1998, released in late October 1998.

Introduction

The present form of the Consumer Price Index (CPI) was introduced in 1960. Its main purpose was for use in the centralised wage determination process that existed in Australia at the time and was to compensate for rises in the 'cost of living' for a particular section of the population.

As such, the basis for its compilation was the change in the overall cost of a representative basket of goods and services purchased by wage and salary earner households in the capital cities. The price changes for each of these goods and services were combined using weights that reflected the importance of the priced items in the total basket.

Approximately every five years the CPI is reviewed. Usually changes are made to the basket of goods and services to reflect the changing expenditure patterns of the target wage and salary earner households. Items drop out and new items are included and the weights attributed to the items are revised as the relative importance of goods and services for the target households change.

Over time, the use of the CPI has expanded from input to wage negotiation processes-even though centralised wage fixing finished in 1987-to include a measure of general inflation, indexation of all sorts of payments and benefits and for economic policy considerations, especially with the introduction of the Treasury underlying rate of inflation.

With the recent rapid decline in interest rates, the CPI has been subject to criticism from various quarters in respect of its use for indexation and in its use as a general measure of inflation. Both are uses for which it was not intended.

The Australian Bureau of Statistics (ABS) has recently announced changes to the CPI that will bring it closer to being a more general measure of inflation and at the same time more appropriate for indexation purposes.

In the Beginning

Australia's first official retail price index(1) was introduced in 1912, and backdated to 1901. It was compiled by the then Commonwealth Bureau of Census and Statistics and was called the A Series Index. Since then there have been four other indexes prior to the introduction of the CPI in 1960. These indexes were the B, C, and D Series Indexes and the Interim Retail Price Index.

These series overlapped each other, had different calculation methods and were for different purposes. However, for wage adjustment purposes the A Series index was used from 1913 to 1933, the D Series (a hybrid of the A and C Series Indexes) for 1933-34 and the C Series from 1934 to 1953.

The Interim Retail Price Index (IRPI) replaced the C series Index in 1954 for general statistical purposes, although the C Series Index continued to be produced and was still considered the official index. The IRPI was itself replaced by the CPI.

The CPI was introduced in 1960 and estimated back to 1948-49. As its predecessors, the CPI is a quarterly series designed to measure price change in the retail goods and services purchased by wage and salary earner households in the capital cities.

The goods and services that are priced are combined into a 'basket' typical of the spending habits of the target wage and salary earner households. This basket remains fixed for approximately five years after which time the CPI undergoes a review. The review process is necessary to keep up to date with not only the types of items that are purchased but also the importance of these items within the households' expenditure.

This reviewing process is what distinguishes the CPI from the earlier retail price indexes, which had their basket of purchases fixed over the entire duration of the index. (The C Series, however, did have one review in 1936 but this only made slight changes to the basket).

Each review of the CPI produces a new CPI series. These new series are called links and are chained together to form one continuous CPI series. Currently, the CPI is in its 12^th link since it was first compiled in 1960. The previous CPI Series were linked in the following periods:

• 1^st Series, June quarter 1949
• 2^nd Series, June quarter 1952
• 3^rd Series, June quarter 1956
• 4^th Series, March quarter 1960
• 5^th Series, December quarter 1963
• 6^th Series, December quarter 1968
• 7^th Series, December quarter 1973
• 8^th Series, September quarter 1974
• 9^th Series, September quarter 1976
• 10^th Series, March quarter 1982
• 11^th Series, December quarter 1986
• 12^th Series, June quarter 1992.

Purpose of the CPI

The purpose of the CPI is to measure the changes, over time, in retail prices of a fixed basket of goods and services purchased by capital city wage and salary earner households. The original use of the CPI was in the wage adjustment process to compensate wage and salary earners for increases in the cost of their day-to-day expenditures.

However, the CPI has also been adopted for measuring changes in the cost of living and for measuring inflation. Both of which it does not strictly do. A measure of cost of living would use a changing basket (rather than a fixed basket) showing consumers substituting items whose prices are becoming relatively more expensive with those items that are becoming relatively less expensive to maintain their living standard.

The CPI is not a measure of general inflation in the true sense, either, because it:

• includes non-market transactions (such as government services)
• includes the costs of purchasing or consuming goods and services other than the retail prices (such as interest rates)(2)
• does not cover the whole of the economy because it only includes capital city wage and salary earner households

Calculation of the CPI

The CPI measures price changes, and movements over time in the CPI reflect the (weighted) average change in the prices of all the goods and services that comprise the CPI 'basket'.

The weights of goods and services that are included in the basket are mainly determined with reference to Household Expenditure Surveys (HES) that are conducted by the ABS.

From HES, not only are the types of goods and services that households are spending their money on identified, but also how much of household spending goes on each of the items. The goods and services, or items, are classified into 8 groups, 35 sub-groups and 107 expenditure classes.

Appendix A shows the classification structure of the present CPI and the respective weightings (i.e. the proportion of households' expenditure on each group, sub-group and expenditure class) expressed in percentages(3). The expenditure classes sum into sub-groups and the sub-groups sum to groups. For example, the Housing group is 15.9% (or nearly a sixth) of the CPI basket and the Housing group comprises the Rents and Home Ownership sub-groups. The weightings shown are at the June quarter 1992, which was the first quarter the present CPI series was compiled. Appendix B gives a list of the items that are priced each quarter.

Combining the changes in prices of items, from the previous quarter, with their respective weightings in the CPI basket gives an overall price change of the basket from the previous quarter. This price change is applied to the CPI from the previous quarter to calculate the index for the current quarter.

The CPI always relates back to a specific base period. At this base period the CPI is set equal to 100.0. The current reference base period is the 1989-90 financial year. The reference base period can be changed independently of a periodic review and is usually done when the base period has become too far in the past.

The current version of the CPI is the 12th series. There have been twelve different versions of the basket of goods and services relating to wage and salary earner capital city households. It is important to note that the linking process, to form one continuous CPI series, is done so that the change in the composition of the basket does not of itself cause distortion in the movement of the CPI. This is achieved by producing overlapping CPI series for the quarter prior to the introduction of a new CPI series.

Latest CPI Review

In May 1997, the ABS released an information paper announcing that the CPI was due for its next review. The ABS considered that, rather than just amending the item weights, it was also the time to 'reassess the scope and coverage of the index and other methodological issues.'(4)

One of the main reasons for believing that a more thorough and comprehensive review than usual was necessary was that while the CPI had a fairly narrow use in the beginning, over time its use has become much broader even to the point of moving somewhat away from its original intention. Therefore, the ABS wanted to find out whether users of the CPI considered that the CPI should become more representative of its broader and newer applications.

Also, the principal purpose of the CPI (centralised wage determination) has certainly become less important in the 1990s. Decentralisation of the wage process through enterprise bargaining has occurred and wage increases are now generally granted after taking into account productivity increases and the enterprise's profitability position. The CPI is used more in the setting of minimum wages, or safety net, based also on award determinations by the Australian Industrial Relations Commission and State tribunals and for the indexation of commercial contracts and various government payments and charges. It also has macroeconomic uses, in particular the direct calculation of the Treasury underlying rate of inflation.(5)

Outcome of the Review

Forty-seven submissions were received from organisations and individuals. The ABS reviewed these submissions and with the aid of a specially convened Advisory Group, made up of a broad range of CPI users, decided on the following major changes:

• the CPI will use the acquisitions(6) approach so it will no longer include mortgage interest(7) or consumer credit charges. It, therefore, will tend toward a specific measure of inflation (for the household sector) and can more confidently be used as a general indicator of inflation for the economy
• the scope of the CPI will be increased to include all private sector households in the eight capital cities. Therefore, the population covered will increase from 29% to 64% of Australian households and the weighting pattern will reflect the purchases of these households, expanding the coverage from 34% to 68% of Australian households' expenditure
• financial services fees, incorporating the myriad of bank charges on all types of accounts and transactions plus financial institutions duty and debits taxes, will comprise a new (9^th) group
• home computers and software, tertiary education fees and domestic services will be added to the basket.

The first two points above were the major outcomes. These changed the fundamental purpose of the CPI making it closer to a measure of inflation and also to being more representative of the types of households that are dependent on its application as an indexation factor.

Two other points of interest from the review are:

• the ABS will develop its own underlying measure of inflation with the major feature of netting out the effects of changes in indirect taxes. This means that government fiscal policy designed to reduce inflationary pressures will not be seen in the index as producing the opposite effect, and
• the ABS will develop indexes for subgroups of the population, although these indexes will be for analytical purposes and will only be published (approximately) annually.

The details of the review, its outcomes and other changes to be made to the CPI can be found in the ABS Information Paper 'Outcome of the 13^th Series Australian Consumer Price Index Review, 1997' (catalogue no. 6453.0) released on 12 November 1997.

The 13^th Series CPI will be introduced from the September quarter 1998 and released in late October this year. (It will be linked to the 12^th Series in the June quarter).

Consequences of the Review

With the exclusion of interest charges (mortgage and consumer credit) and the adoption of the acquisitions approach the 13^th Series CPI will move closer to a measure of inflation. Since the scope of the CPI will be increased to include all private households in the capital cities, this measure of inflation will specifically be for the private household sector. However, because of the high proportion of the population that will now be covered, it will also be a more useful measure of general inflation.

Private households whose only incomes are derived from such sources as pensions, social security benefits and superannuation payments will now be part of the CPI process and their expenditure patterns will be included in producing the CPI basket of goods and services. Their direct involvement, combined with the exclusion of mortgage interest charges, should make the CPI more relevant to them.

This is particularly important since these types of households rely on the CPI to index their sources of income. Many of these types of household are also low income households and they may benefit too as the new CPI will be a 'more appropriate measure for input to the process for adjusting the award safety net by the Australian Industrial Relations Commission.'(8)

It has been argued that the recipients of many types of payments have been adversely affected by having their payments indexed by the current CPI, especially because of the interest charges component. With the removal of these components this should no longer be the case.

However, it is now argued that these recipients will also be disadvantaged by the new CPI because interest charges are not part of it. This is not because the CPI is not relevant but because of the timing of its introduction. The introduction of the 13^th Series CPI, in late October 1998, will probably coincide with the economy still at or around the low point of the interest rate cycle. When interest rates rise again in the future the payments will not be indexed for this rise and therefore pensioners will have been disadvantaged twice. Firstly, under the current CPI there have been no indexation increases in the last 12 months predominantly due to the rapid decline in mortgage interest charges, and, under the 13^th series CPI they will not receive any rise that would have been attributed to increases in mortgage interest rates.(9)

This is one possible scenario and will only be relevant if home loan interest rates increase more rapidly in relation to other prices. An alternative scenario is that pensioners actually may be better off if mortgage interest charges increase, but increase more slowly than prices of other items that make up the CPI basket of goods and services. In this case, if mortgage rates were included they would act as a dampener and the increase in the CPI would be less than if mortgage rates were excluded. This may be a more realistic scenario especially if food prices rise rapidly. Since the expenditures of pensioner and other non-wage and salary earner households will be part of the CPI basket then it is conceivable that food will have a greater weight than the current 18% (see Appendix A).

Pensions, however, are no longer tied solely to the CPI. With legislation(10) passed last year there is now a safety net which, although it has been operating de facto over the last decade or so, also ties the single rate of pension to 25% of average weekly total earnings for all male employees.

Therefore, in periods where wages are increasing faster than inflation, pensions may receive an extra increase above the CPI indexed amount if their level becomes less than 25% of average earnings. The first such increase to the single rate of pension under this new legislation will be paid on 2 April this year with a $3.40 per week rise.(11)

Finally, as previously described, when a new CPI series is joined to the existing series the linking process maintains the integrity of the series by only showing price movements. The difference in the costs of the old and new baskets of goods and services does not influence the level of the CPI. This is correct when looking at the quarter-to-quarter change across the link but for other longer-term movements that cross the link, e.g. six monthly (two quarters) or annual, there may be an effect. For example, if the present economic conditions prevail after the linking of the new CPI series the exclusion of mortgage interest charges will produce an increase in the longer-term movements in the CPI. This increase in the CPI will occur even if no other prices rise because the current dampening effect of mortgage interest charges will have been omitted. However, this will not affect the Treasury underlying rate of inflation measure as mortgage interest charges have never been included in its calculation.

Appendix A: Weighting pattern for the Consumer Price Index in June quarter 1992

Eight capital cities combined

Group, sub-group, expenditure class	Percentage contribution to the All groups CPI in June quarter 1992
	Group total	Sub-Group total	Expenditure class
Food	18.324
Dairy products		1.463
Milk and cream			0.895
Cheese			0.373
Butter			0.055
Other dairy products			0.140
Cereal products		2.097
Bread			0.867
Cakes and biscuits			0.773
Breakfast cereals			0.252
Other cereal products			0.205
Meat and seafoods		3.001
Beef and veal			0.736
Lamb and mutton			0.363
Pork			0.177
Poultry			0.401
Bacon and ham			0.308
Processed meat			0.690
Fish			0.326
Fresh fruit and vegetables		1.417
Fresh fruit			0.690
Fresh potatoes			0.121
Other fresh vegetables			0.606
Processed fruit and vegetables		0.829
Processed fruit			0.140
Fruit juice			0.419
Processed vegetables			0.270
Soft drinks, ice cream and confectionery		2.890
Soft drinks and cordials			1.212
Ice cream and ice confectionery			0.354
Confectionery			1.324
Meals out and take away foods		4.959
Meals out			1.818
Take away foods			3.141
Other Food		1.668
Eggs			0.121
Sugar			0.056
Jams, honey and sandwich spreads			0.149
Tea, coffee and food drinks			0.289
Food additives, sauces and spices			0.242
Margarine			0.130
Cooking oils and fats			0.084
Other food			0 597
Clothing	6.264
Men's and boy's clothing		1.686
Men's outer clothing			0.680
Men's knitwear			0.158
Men's shirts			0.317
Men's underwear, nightwear and socks			0.149
Boy's clothing			0.382
Women's and girl's clothing		2.545
Women's outer clothing			1.640
Women's knitwear			0.196
Women's underwear, nightwear and hosiery			0.345
Girl's clothing			0.364
Fabrics and knitting wool		0.746	0.746
Footwear		1.063
Men's footwear			0.354
Women's footwear			0.457
Children's footwear			0.252
Dry cleaning and shoe repairs		0.224	0.224
Housing	15.900
Rents		4.865
Privately-owned dwelling rents			4.483
Government-owned dwelling rents			0.382
Home ownership		11.035
Mortgage interest charges			6.608
Local government rates and charges			2.190
House repairs and maintenance			1.827
House insurance			0.410
Household equipment and operation	18.370
Fuel and light		2.339
Electricity			1.752
Gas			0.531
Other fuel			0.056
Furniture and floor coverings		4.344
Furniture			3.505
Floor coverings			0.839
Appliances		1.538	1.538
Household textiles		0.754
Bedding			0.353
Towels, linen and curtains			0.401
Household utensils and tools		1.212
Tableware, glassware and cutlery			0.261
Kitchen and cooking utensils			0.382
Cleaning utensils			0.084
Tools			0.485
Household supplies and services		3.970
Household cleaning agents			0.671
Household paper products			0.457
Other household non-durables			0.857
Stationery			0.429
Watches and clocks			0.121
Veterinary services			0.121
Pet foods			0.485
Travel goods			0.270
House contents insurance			0.382
Repairs to appliances			0.177
Postal and telephone services		1.715
Postal services			0.168
Telephone services			1.547
Consumer credit charges		2.498	2.498
Transportation	15.967
Private motoring		14.755
Motor vehicles			3.989
Automotive fuel			4.698
Vehicle insurance			2.106
Motoring charges			0.839
Tyres and tubes			0.345
Vehicle servicing, repairs and parts			2.778
Urban transport fares		1.212	1.212
Tobacco and alcohol	7.475
Alcoholic drinks		5.061
Beer			2.927
Wine			1.016
Spirits			1.118
Cigarettes and tobacco		2.414	2.414
Health and personal care	6.850
Health services		3.961
Hospital and medical services			3.150
Optical services			0.177
Dental services			0.634
Personal care products		2.097
Pharmaceuticals			0.820
Toiletries and personal products			1.277
Hairdressing services		0.792	0.792
Recreation and education	10.850
Books, newspapers and magazines		1.146	1.146
Recreation goods		2.564
Video and sound equipment			0.802
Records, cassettes and tapes			0.308
Sports and photographic equipment and toys			1.454
Holiday travel and accommodation		2.349
Holiday travel and accommodation in Australia			1.296
Holiday travel and accommodation overseas			1.053
Recreation services		2.852
Photographic services			0.242
Repairs to recreational goods			0.112
Entertainment			2.498
Education and child care		1.939
Education fees			1.557
Child care fees			0.382
Total all groups	100.000	100.000	100.000

Appendix B: List of goods and services priced for the CPI

Across the eight capital cities approximately 100,000 price quotations are collected each quarter. There are some local variations in the items priced.

While it is not practical to reproduce a complete list of the goods and services priced, the following list gives an indication of the kinds of items priced in each expenditure class.

Group, sub-group, expenditure class	Items priced
Food
Dairy products
Milk and cream	Fresh and flavoured milk; cream
Cheese	Processed; natural
Butter	First quality
Other dairy products	Yoghurt; powdered milk
Cereal products
Bread	Various sizes and types
Cakes and biscuits	Cakes, biscuits; frozen fruit pies
Breakfast cereals	Corn and wheat based
Other cereal products	Flour; rice; pasta
Meat and seafoods
Beef and veal	Steak; roast; mince
Lamb and mutton	Chops; leg
Pork	Chops; leg
Poultry	Fresh and frozen chicken
Bacon and ham	Middle rashers; ham
Processed meat	Canned; cooked; salami; sausages
Fish	Fresh; canned; frozen
Fresh fruit and vegetables
Fresh fruit	Oranges; apples; bananas; pears; pineapples; peaches; plums; grapes; strawberries; grapefruit; mandarins; watermelons
Fresh potatoes	Washed and unwashed; loose and pre-packed
Fresh vegetables	Beans; carrots; cabbages; lettuces; tomatoes; pumpkin; onions; cauliflower; mushrooms; celery
Processed fruit and vegetables
Processed fruit	Canned; dried
Fruit juice	Fresh; tetra pack
Processed vegetables	Frozen; canned
Soft drinks, ice cream and confectionery
Soft drinks and cordials	Carbonated-bottles and cans; bottled liquid concentrates; mineral water
Ice cream and ice confectionery	Various size packs; milk and water based confectionery
Confectionery	Chocolate; sugar and savoury confectionery; nuts
Meals out and take away foods
Meals out	Restaurant; cafeteria
Take away foods	Cooked chicken; pizzas; hamburgers; meat pies; sandwiches
Other food
Eggs	Dozen packs, various sizes
Sugar	White, granulated
Jams, honey and sandwich spreads	Jam; honey; peanut butter
Tea, coffee and food drinks	Tea-packets and bags; instant coffee; chocolate-based drinks
Food additives, sauces and spices	Sauces; spices; salad dressings
Margarine	Polyunsaturated and other
Cooking oils and fats	Cooking oil
Other food	Soups; baked beans; canned baby food; frozen meat pies; frozen pizzas
Clothing
Men's and boys' clothing
Men's outer clothing	Suits; trousers; jeans; overalls; shorts
Men's knitwear	Jumpers; cardigans; pullovers
Men's shirts	Business; casual
Men's underwear, nightwear and socks	Briefs; singlets; pyjamas; socks
Boys' clothing	Jeans; shorts, shirts; underwear; pyjamas; knitwear
Women's and girls' clothing
Women's outer clothing	Frocks; skirts; blouses; jeans; slacks; coat
Women's knitwear	Jackets; cardigans; jumpers
Women's underwear, nightwear	Foundation garments; briefs; nightdresses; hosiery; pyjamas; pantyhose
Girls' clothing	Jeans; frocks; skirts; blouses; underwear; nightwear; knitwear
Fabrics and knitting wool	Fabrics; knitting wool; haberdashery
Footwear
Men's footwear	Shoes; boots; slippers; joggers; thongs
Women's footwear	Dress and casual shoes; slippers; thongs
Children's footwear	School shoes; casual shoes; boots; thongs
Dry cleaning and shoe repairs	Dry cleaning; shoe repairs
Housing
Rents
Privately-owned dwelling rents	Houses; flats
Government-owned dwelling rents	Houses; flats
Home ownership
Mortgage interest charges	Interest rates charged on mortgages
Local government rates and charges	Council rates and charges; water and sewerage rates and charges
House repairs and maintenance	Repair materials; paints; tradesmen's labour charges
House insurance	Comprehensive insurance of dwellings
Household equipment and operation
Fuel and light
Electricity	Domestic tariffs
Gas	Mains; bottled
Other fuel	Heating oil; kerosene
Furniture and floor coverings
Furniture	Kitchen; bedroom; dining; lounge room
Floor coverings	Carpets; hard floor coverings
Appliances	Refrigerators; freezers; washing machines; dryers; stoves; small appliances; dishwashers; microwave ovens; vacuum cleaners; airconditioners
Household textiles
Bedding	Blankets; bedspreads; sheets; pillowcases; continental quilts
Towels, linen and curtains	Towels; tea towels; table linen; curtains
Household utensils and tools
Tableware, glassware and cutlery	Dinner settings; glassware; cutlery
Kitchen and cooking utensils	Saucepans; frypans; ovenware; kettles; plastic utensils
Cleaning utensils	Brooms; mops; garbage bins; dustpans
Tools	Lawnmowers, garden and hand tools, electric drills, paint brushes
Household supplies and services
Household cleaning agents	Detergents; polishes; cleaning liquids
Household paper products	Toilet paper; facial tissues
Other household non-durables	Garden supplies; insecticides; matches; batteries; air fresheners; wrapping film; garbage bags
Stationery	Greeting cards; writing pads exercise books; envelopes; pens; pencils; sticky tapes; correction fluid
Watches and clocks	Men's and women's watches; household clocks
Veterinary services	Veterinarians' fees for treatment of household pets
Pet foods	Canned; dried
Travel goods	Suitcases; handbags; wallets; umbrellas
House contents insurance	Comprehensive insurance cover for household contents
Repairs to appliances	Washing machine service charges
Postal and telephone services
Postal services	Letters (domestic and overseas); parcels.
Telephone services	Local, STD and overseas calls; telephone rental
Consumer credit charges	Interest rates charged on personal loans; credit cards
Transportation
Private motoring
Motor vehicles	New cars; new motor cycles
Automotive fuel	Petrol: leaded and unleaded
Vehicle insurance	Comprehensive; third party compulsory; third party property
Motoring charges	Registration; driver's licence; parking fees; organisation membership
Tyres and tubes	Passenger car radial tyres; retreads
Vehicle servicing, repairs and parts	Batteries; oil; mechanical and electrical parts; car supplies; smash repair parts; mechanics' labour charges; smash repair labour charges; insurance excess
Urban transport fares	Bus; train; tram; ferry; taxi
Tobacco and Alcohol
Alcoholic drinks
Beer	Full strength and low alcohol draught; bottles; cans
Wine	Bottles; casks; restaurant wine
Spirits	Bottles; bar sales
Cigarettes and tobacco	Cigarettes (cartons and single packs); pipe and cigarette tobacco
Health and Personal Care
Health services
Hospital and medical services	Health insurance contributions; doctors' fees (net of Medicare and fund benefits)
Optical services	Consultations; prescription lenses and frames
Dental services	Dentists' fees
Personal care products
Pharmaceuticals	Prescription medicines; proprietary medicines; dressings; vitamins; antiseptics
Toiletries and personal products	Cosmetics; talc powder; toilet soap; toothpaste; shampoos and conditioners; razor blades; hair dryers
Hairdressing services	Men's; women's; boys'
Recreation and Education
Books, newspapers and magazines	Books; magazines; morning, evening and weekend newspapers
Recreational goods
Video and sound equipment	Colour TVs; video recorders; radios; cassette recorders; compact disc players; sound equipment
Records, cassettes and tapes	Compact discs; pre-recorded cassettes; blank audio and video cassettes
Sports and photographic equipment and toys	Sports equipment; cameras and films; toys; games; bicycles
Holiday travel and accommodation
Holiday travel and accommodation in Australia	Air, bus and rail fares; hotel, motel and caravan park charges; package tours
Holiday travel and accommodation overseas	Airfares; hotel charges; package tours
Recreational services
Photographic services	Film processing and printing
Repairs to recreational goods	TV and video recorder repair charges
Entertainment	Admission charges - cinema, theatre, sporting (participation and non-participation), non-sporting; T.V. and video recorder hire charges; hire of video tapes
Education and child care
Education fees	Private (primary and secondary) and government (primary and secondary) schools
Child care fees	Pre-schools; child care centres

Sources

Australian Bureau of Statistics (ABS), Information Paper, 'Issues to be Considered During the 13^th Series Australian Consumer Price Index Review, 1997', catalogue no. 6451.0

ABS, Information Paper, 'Outcome of the 13^th Series Australian Consumer Price Index Review, 1997', catalogue no. 6453.0

ABS, The Australian Consumer Price Index, Concepts, Sources and Methods, catalogue no. 6461.0

ABS, Information Paper, 'An Analytical Framework for Price Indexes in Australia, 1997', catalogue no. 6421.0

ABS, A Guide to the Consumer Price Index, Twelfth Series, catalogue no. 6440.0

ABS, Consumer Price Index, Australia (quarterly), catalogue no. 6401.0

Department of the Treasury, Treasury Submission to the Thirteenth Series CPI Review.

Endnotes

1. The CPI is a retail price index. The name was changed to conform to international practices in the naming of indexes.
2. Interest rates are the price of money or the relative price of purchasing an item today rather than in the future. As such an interest rate change does not really say anything about the current price changes of goods and services. Also, interest charges in any period do not directly relate to the purchasing of specific goods or services in that period. By including interest rates, a rise in interest rates introduced to retard inflation will actually be shown as an inflationary increase.
3. Between CPI reviews the group, sub-group and expenditure class weights remain fixed, however, below the expenditure class level weights are allowed to vary to reflect changing market circumstances.
4. ABS, Information Paper, 'Issues to be Considered During the 13^th Series Australian Consumer Price Index Review, 1997', catalogue no. 6451.0, page v.
5. The Treasury underlying rate of inflation was developed to more closely measure the short-term inflationary pressures in the economy that are predominantly due to market forces. It is calculated directly from the CPI by excluding those items in the CPI basket of goods and services that are affected by highly volatile factors, seasonal factors or government policy decisions. (This amounts to almost half the CPI basket being excluded).
6. The adoption of the acquisitions approach means that only goods and services acquired during the period are included in the CPI basket. This differs from the outlays approach which is used at present. The outlays (or payments) approach also includes in the basket payments, such as interest charges, which are unavoidable costs of acquisition or consumption. The acquisitions approach produces a measure of inflation while the outlays approach determines changes in purchasing power and hence its use for wage determination.
7. Mortgage interest charges is an expenditure class in the home ownership sub-group of the current CPI. This will now be replaced by a new expenditure class that measures purchases of new dwellings (excluding land) and the cost of alterations and additions to existing dwellings.
8. ABS, Information Paper, 'Outcome of the 13^th Series Australian Consumer Price Index Review, 1997', catalogue no. 6453.0, page 6.
9. This same argument has been put forward by holders and dealers of Treasury indexed bonds, although any detrimental effect (if at all) would only be in the short-term, probably the next 2-3 years. Since these types of bonds are considered long-term (less risky) investments they should still achieve their objective, which is to get a long-term return over and above the rate of inflation.
10. Social Security and Veterans' Affairs Amendment (Male Total Weekly Earnings Benchmark) Act 1997.
11. There was no indexation increase due to the CPI, so the $3.40 increase was due solely to the new legislation.

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