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CPI NOV_08

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					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
              CPI Index
    Quarter


    Dec-04     146.5
s   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
              CPI Index   Rebased Dec 04
    Quarter


    Dec-04     146.5          100.0
s   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)‫‏‬                                       Food



                                                 Dairy and
    Subgroup (31)‫‏‬                                related
                                                 products


   Expenditure class
        (90)‫‏‬                           Cheese



      Elementary
                                  Cheese block
      aggregate


       Product                Cheese
     Specification          matured Bega
                               Tasty
                                500g



       Location        Coles Ivanhoe
          Consumer Price Index (formula)
                                                       p 1j
CPI (weighted) =
                                      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
     Questions ?

w

				
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