Australia: What is the 17th series CPI? - Westpac
In Australia, ABS maintains a program of periodic reviews of the Consumer Price Index (CPI) to ensure it remains in line with latest spending patterns associated with changing technology and individual preferences, points out the research team at Westpac.
“It also has to correct for a substitution bias that emerges over time as spending tends to rise (fall) for items where relative prices have declined (risen). The 17th series is the latest review (the 16th was released in 2011) and incorporates updates of the upper level (expenditure class) weights in line with the latest Household Expenditure Survey (HES).”
“What are the major changes?
Using the new weights Westpac found that the contribution of food, rents, household contents, recreation, education plus finance & insurance all rise. The contribution of tobacco, dwelling purchases, utilities and health are all reduced.”
“Does this have an impact on inflation?
We estimate that if the weights were introduced a year ago then the annual rate of headline inflation would have been 1.55%yr in the September quarter, a –0.28ppt impact compared to what was printed.”
“What impact do the changes have on our forecasts?
Applying the revised weights to our bottom up forecasts we find that our headline inflation forecast is 0.4ppt lower at 2.0%yr by end 2018. We also find that the re-weighting lowers our core inflation forecast by 0.2ppt to 2.0%yr by end 2018.”
“What does this mean for the RBA?
The reweighting of the CPI clearly makes it increasingly difficult for the RBA to hit its medium term inflation target. The Australian economy just does not have the inflationary impulse in the sectors that are inflating (housing and energy is the key here) to offset the disinflationary pressures that dominate the consumer retailing space.”