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Case Study 1: Enhancements to the Consumer Price Index (CPI) (Target 1.2)

The Consumer Price Index, or CPI, is a measure of household inflation and is the most popular economic statistic on the ABS website. The reason for the CPI’s popularity is its use (by the Reserve Bank of Australia) to set official interest rates; and to adjust rents, wages, pensions and government fees.

But changes to technology and the structure of the economy over time mean that the way we gather and compile the data needs to change, too.

Following a period of research, innovation and extensive consultation, significant enhancements to the CPI were implemented in the December quarter 2017. Three main CPI enhancements were implemented, the first being the implementation of new household spending patterns. The use of transactions data (point-of-sale scanner data from retailers) for pricing and weighting purposes was also enhanced. Thirdly, the CPI was enhanced by the use of web scraping (the automated process of collecting price data from retailers’ websites) to collect price data.

These enhancements offer significant benefits for stakeholders. Reweighting the CPI ensures that the index is a more accurate reflection of current household expenditure on goods and services, and that the CPI data is of high quality. Using transactions data enables the data to be timelier, more accurate, and more comprehensive. Web scraping price data also boosts timeliness, quality, and broadens the range of analysis that is possible.

Extensive consultation with international experts and key stakeholders has been undertaken to secure support for these enhancements and to manage statistical risk. Consultation included external expert reviews by Professor Kevin Fox (University of NSW Sydney), Professor Jan de Haan (Statistics Netherlands/Delft University of Technology) and Mr Paul McCarthy (national accounts and price statistics expert); and a stakeholder engagement program including a call for public submissions.

The ABS also conducted numerous bilateral and multilateral consultations with key stakeholders, including: the Reserve Bank of Australia; the Treasury; Department of Social Services; Department of Finance; and State Treasuries.

Public comments from journalists and economists highlighted the smooth implementation of CPI enhancements following release of the data. This outcome is a result of careful planning and implementation, utilising Quality Advisors and external experts to make significant changes to an important ABS series. “Finally, we do not see the move to the 17th series CPI as having had a material impact on the quarterly inflation outturn (i.e. the data reported today). Neither, in our view, did the various methodological changes”, said Deutsche Bank Chief Economist, Adam Boyton.

CPI methodological enhancements were also endorsed by Professor Kevin Fox of UNSW Sydney, who said “I strongly support the ABS decision to implement new CPI methods for the treatment of transactions data. The ABS has made a convincing case for implementation following an extended period of research. These new methods will enhance the accuracy of the Australian CPI, provide additional analytics and better inform policy formulation.”

The ABS will continue to reweight the CPI in the future, and the successful incorporation of new data sources into the publication’s methodology will pave the way for further improvements. The CPI is an important data set to a great many stakeholders, and the recent enhancements build community confidence in the data, as it continues to inform Australia’s important decisions.