Chapter 1Australian Bureau of Statistics production of inflation rate statistics
1.1On 19 August 2024, the Senate referred an inquiry into how the Australian Bureau of Statistics (ABS) produces statistics relating to the inflation rate to the Senate Economics References Committee (the committee) for inquiry and report by 19 September 2024.
1.2Under the terms of reference, the committee was required to investigate how the Australian Bureau of Statistics ‘produces statistics relating to the inflation rate, including how the Consumer Price Index and Cost of Living Indexes are measured’.
1.3Additionally, the Senate directed the committee to hold a public hearing on Monday, 9 September 2024, for the purpose of hearing from ABS officials.
Conduct of the inquiry
1.4The committee requested and received a written submission from the ABS. The committee did not open submissions to the public on this occasion.
1.5The committee held one public hearing on 9 September 2024 at Parliament House, Canberra, as per the direction of the Senate. A list of witnesses that appeared before the committee can be found at Appendix 2.
1.6The committee thanks officials from the ABS for their contribution to the inquiry.
Introduction
1.7Since the first publication in 1960, the Australian Consumer Price Index (CPI) has served as an inflationary measurement tool, indicating the change of goods and service prices purchased within Australian households.
1.8Predominately used by businesses, consumers and policymakers, the CPI is designed to measure periodic changes related to a ‘fixed basket’ of household goods and services, which are compiled and published by the ABS once every quarter as a macro-economic indicator for inflation.
1.9In addition to the CPI, the ABS is also responsible for the compilation of the Selected Living Cost Indexes (SLCIs) for Australia. While separate to the CPI, these indexes indicate changes to after-tax purchasing power, relative to different household types (differentiated by the source of primary income).
Consumer Price Index
1.10On the quarters ending 31 March, 30 June, 30 September and 31 December, the ABS releases an updated CPI, which is compiled through several data collection methods:
personal visits;
online and telephone collection; and
administrative data, including scanner and transactions data.
This data is then arranged to form a ‘basket’ of goods and services.
1.11As stated in the ABS’s submission, there are 11 goods and services categories used to construct the ‘basket’:
food and non-alcoholic beverages;
alcohol and tobacco;
clothing and footwear;
housing;
furnishings, household equipment and services;
health;
transport;
communication; and
recreation and culture.
1.12Once compiled and weighted accordingly against the Household Expenditure Survey (HES), or the Household Final Consumption Expenditure data (on years that the HES has not been conducted), a direct comparison is able to be made against previously collected data, thereby indicating periodic levels of inflation. This data is used by the Reserve Bank of Australia (RBA) to inform future inflationary targets, and more broadly as an economic reference point for other users of the data.
1.13During the hearing on 9 September 2024, the committee discussed the common misconceptions surrounding the CPI and its representation of relative housing costs to Australians.
1.14Mr Brenton Goldsworthy, Deputy Australian Statistician of the ABS, described to the committee that ‘[w]hat the CPI does is measure the change in the prices of goods and services purchased by households.’ Mr Goldsworthy further stated that:
There are two principal differences at a higher level between the selected living cost indices and the CPI. One is the weights we use to aggregate the prices of individual goods and services into an index. For the CPI, we use weights based on household spending patterns in the eight capital cities. Whereas, for the living costs indices, we use weights that reflect the spending patterns of the particular household type.
1.15Mr Goldsworthy outlined that ‘[f]or the CPI, we separate the cost of housing’, as land is treated as an ‘asset or an investment’. However, as an example, Mr Goldsworthy clarified that the cost of materials and labour for the building of houses and structures would remain under the CPI, due to being a material cost.
1.16In summary, Mrs Michelle Marquardt, Program Manager, Prices Branch at the ABS, stated that the CPI is to be regarded as ‘representing [a] price change for all households’, and further confirmed that the CPI is not a representation for an individual.
1.17The committee recognises the efforts of the ABS and appreciates the clarification and transparency surrounding the collected data.
Selected Living Cost Indexes, Australia
1.18The SLCIs are compiled and used by the ABS to refine living cost data relative to different household types within Australia.
1.19As mentioned above, the SLCIs indicate changes to after-tax purchasing power, relative to different household types and based on the primary income source. The data is categorised into five indices to make up the SLCIs:
Pensioner and beneficiary LCI;
Employee LCI;
Age Pensioner LCI;
Other government transfer recipient LCI; and
Self-funded retiree LCI.
1.20The committee raised concerns regarding the discontinuation of the ABS’s residential property price indexes. The ABS informed the committee that due to the private sector’s access to direct sales data, it was often the case that the data was provided faster by the private sector. As a result, the ABS chose to prioritise resources more effectively elsewhere.
1.21Furthermore, the ABS assured the committee that it does indeed factor in data related to mortgage cost changes, whether that be in the form of interest rate or mortgage size variation within the SLCIs.
1.22As a matter of differentiation, it is recognised that the ABS’s methodology describes the CPI as using an ‘acquisitions’ approach, in comparison to that of an ‘outlays’ approach used in the SLCIs:
The acquisitions approach measures price change for all those consumer goods and services actually acquired by households during the base period. The outlays (or payments) approach measures changes in the actual amounts paid (or outlayed) by households to maintain a certain standard of living. The biggest difference between the two approaches is the measurement of housing costs. The Living Cost Indexes include mortgage interest charges as a measure of owner-occupied housing, whereas the CPI includes the cost to build a new dwelling.
Committee view
1.23The committee notes, and appreciates, the ABS’ continual work to provide statistical analysis in support of the Australian public and the overall economy.
Senator Andrew Bragg
Chair
Liberal Senator for New South Wales