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

2. 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

3. 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

4. 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.

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

6. 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

7. 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

9. Perth 16.3%
Aust. 13.7%
Melb. 13.1%

10. Perth 4.9%
Aust. 5.0%
Melb. 4.8%

11. Perth 1.0%
Aust. 1.2%
Melb. 1.2%

15. 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'

16. 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

17. 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

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

19. 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

20. 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

21. 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

22. 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

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

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

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

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

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

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

29. n
Darwin
Brisbane
Perth
Sydney
Adelaide
Canberra
Melbourne
Hobart

30. Questions ? w