CPI: Past, Present and Future


Current Issues Brief 14 1997-98

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 13th 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 12th link since it was first compiled in 1960. The previous CPI Series were linked in the following periods:

  • 1st Series, June quarter 1949
  • 2nd Series, June quarter 1952
  • 3rd Series, June quarter 1956
  • 4th Series, March quarter 1960
  • 5th Series, December quarter 1963
  • 6th Series, December quarter 1968
  • 7th Series, December quarter 1973
  • 8th Series, September quarter 1974
  • 9th Series, September quarter 1976
  • 10th Series, March quarter 1982
  • 11th Series, December quarter 1986
  • 12th 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 (9th) 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 13th Series Australian Consumer Price Index Review, 1997' (catalogue no. 6453.0) released on 12 November 1997.

The 13th Series CPI will be introduced from the September quarter 1998 and released in late October this year. (It will be linked to the 12th 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 13th 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 13th 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 13th 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 13th Series Australian Consumer Price Index Review, 1997', catalogue no. 6451.0

ABS, Information Paper, 'Outcome of the 13th 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 13th 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 13th 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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