The Reality Beyond the text Book? Consumer Price Index (CPI)‏ ABS Cat. No. 6401.0 The Reality Beyond the text Book?

Headlines Banana, petrol prices drive inflation figures higher (2006)‏ Inflation not likely to take off - Costello (2007)‏ "The consumer price index (CPI) is ... expected to rise to 4.25 per cent by June and 4.5 per cent by December before declining to 3.25 per cent to 3.5 per cent next year." SMH May 2008

Contents The CPI defined The CPI The CPI in use Limitations of the CPI Compiling a CPI Extensions cases spatial price indexes for Australia Questions

The CPI defined the CPI is an index the CPI measures the changes in the price of a fixed basket of goods and services acquired by household consumers the CPI directly relates only to consumer goods and services priced in the eight capital cities the CPI is designed as a general measure of price inflation for the private household sector.

The CPI in use We're interested Government and agencies - RBA, Treasury, etc Analysts/speculators Lobby groups

The CPI - Australia s Quarter Dec-04 146.5 Mar-05 147.5 Jun-05 148.4 CPI Index s Dec-04 146.5 Mar-05 147.5 Jun-05 148.4 Sep-05 149.8 Dec-05 150.6 Mar-06 151.9 Jun-06 154.3 Sep-06 155.7 Dec-06 155.5 Mar-07 155.6 Jun-07 157.5 Sep-07 158.6 Dec-07 160.1 Mar-08 162.2 Jun-08 164.6 Sep-08 166.5

The CPI - Australia s Quarter Dec-04 146.5 100.0 Mar-05 147.5 100.7 CPI Index Rebased Dec 04 s Dec-04 146.5 100.0 Mar-05 147.5 100.7 Jun-05 148.4 101.3 Sep-05 149.8 102.3 Dec-05 150.6 102.8 Mar-06 151.9 103.7 Jun-06 154.3 105.3 Sep-06 155.7 106.3 Dec-06 155.5 106.1 Mar-07 155.6 106.2 Jun-07 157.5 107.5 Sep-07 158.6 108.3 Dec-07 160.1 109.3 Mar-08 162.2 110.7 Jun-08 164.6 112.4 Sep-08 166.5 113.7

Perth 16.3% Aust. 13.7% Melb. 13.1%

Perth 4.9% Aust. 5.0% Melb. 4.8%

Perth 1.0% Aust. 1.2% Melb. 1.2%

What the CPI is not the CPI does not directly relate to goods and services acquired for commercial purposes the CPI is not a measure of price levels across different cities the CPI is not a measure of the 'cost of living'

Composition of the CPI Basket Based on the pattern of household expenditure as determined by Household Expenditure Survey The basket must attempt to maintain constant quality over time Basket is divided into 11 broad groupings

The CPI Structure The 11 groups are: Food Alcohol and tobacco Clothing and footwear Housing Household contents and services Health Transportation Communication Recreation Education Financial and insurance services

The CPI Structure (cont'd)‏ CPI Group weightings, across 8 capital cities.

Pricing Items for the CPI About 100,000 separate price quotations are collected each quarter Typically, volume selling brands are priced Same item in each capital city, from a representative selection of sources

Constructing the CPI All groups Group (11)‏ Subgroup (31)‏ Food Dairy and related products Subgroup (31)‏ Expenditure class (90)‏ Cheese Elementary aggregate Cheese block Product Specification Cheese matured Bega Tasty 500g Coles Ivanhoe Location

Consumer Price Index (formula) CPI (weighted) = p 1j  w 0j p0j Laspeyres Index Formula where: p1j is the comparison period '1' price for item 'j' p0j the base '0' period price for item 'j' W0j are the quantity weights for item 'j' in base period '0' e.g. item 'j' might be a bottle of wine

Summary to date Looked at graphs of the CPI Briefly outlined some of the uses for a CPI What the CPI isn't Outlined the structure and compilation of a CPI

Special Cases Comparing prices across capital cities spatial price index for Australia

spatial price index for Australia Darwin Brisbane Perth Sydney Adelaide Canberra Melbourne Hobart

spatial price index for Australia Darwin 1.2 % Brisbane Perth Sydney Adelaide Canberra Melbourne Hobart

spatial price index for Australia Darwin 1.2 % Brisbane 1.2 % Perth Sydney Adelaide Canberra Melbourne Hobart

spatial price index for Australia Darwin 1.2 % 1.1% Brisbane 1.2 % Perth Sydney Adelaide Canberra Melbourne Hobart

spatial price index for Australia Darwin 1.15 % 1.0% Brisbane 1.15 % Perth Sydney Adelaide Canberra Melbourne Hobart

n Darwin Brisbane Perth Sydney Adelaide Canberra Melbourne Hobart

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