Consumer Price Index – CPI Update

Inflation can be both the investors friend and foe. For the mortgage holder Inflation can help ease the pain of mortgage payments over the long term with the real cost of repayments reducing. For a retiree however the constant increase in the cost of goods over the period of retirement can have an extremely detrimental impact on their standard of living. As a result good retirement planning needs to take into account inflation and ensure the right mix of assets is held in a portfolio to help the portfolio withstand the significant impacts of inflation over the long term.

The Consumer Price Index (CPI), Australia is the most commonly used indicator of inflation in the economy. It reflects the rate of change in the general level of retail prices by measuring the cost of metropolitan households purchasing an identical sample or 'basket' of goods and services in each of the eight capital cities.

Indexes for each of these groups and for 'All Groups' are published for each of the state capitals along with Canberra and Darwin, and for the weighted average of the eight capital cities. These goods and services are divided into 11 broad groups with a total of 90 expenditure classes - food, clothing and footwear, housing, household contents and services, transportation, alcohol and tobacco, health, communication, education, recreation, and financial and insurance services. Each group is given a percentage weighting that is reviewed every five years to reflect changing spending patterns.

The frequency of price collection by item varies as necessary to obtain reliable price measures. Prices of some items are volatile (i.e. their prices may vary many times each quarter) and for these items frequent price observations are necessary to obtain a reliable measure of the average price for the quarter. Each month prices are collected at regular intervals for goods such as milk, bread, fresh meat and seafood, fresh fruit and vegetables, alcohol, tobacco, women's outerwear, project homes, motor vehicles, petrol, and holiday travel and accommodation.

For most other items, price volatility is not a problem and prices are collected once a quarter. There are a few items where prices are changed at infrequent intervals, for example education fees where prices are set once a year. In these cases, the frequency of price collection is modified accordingly.

The figures from each capital city are weighted to reflect the relative population and then averaged to give the CPI.
Apart from its role in wage negotiations and determining interest rates, the CPI is also used for adjustment to social security pensions and superannuation, a range of business contracts and the indexation method of calculating capital gains tax.

Source: Australian Bureau of Statistics, 2009.

Percentage change in CPI (from corresponding quarter of previous year)

March 2009
2.5
December 2008
3.7
September 2008
5.0
June 2008
4.5
March 2008
4.2
December 2007
3.0
September 2006
1.9
June 2006
2.1
March 2006
2.4
December 2005
2.8
September 2005
3.0
June 2005
2.5
March 2005
2.4
December 2004
2.6


Percentage change in CPI (from previous financial year)

Financial year
% CPI Change
2007/08
3.4
2006/07
2.9
2005/06
3.2
2004/05
2.4
2003/04
2.4
2002/03
3.1
2001/02
2.9
2000/01
6.0*

 
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