A monthly consumer price index may prove more volatile than the existing quarterly measure due to the way price data is collected, the nation’s chief number cruncher has warned.
But these “deficiencies” could be overcome by using annual or quarterly comparisons to each month’s number, to give a better sense of the trend in household inflation.
The Australian Bureau of Statistics is pushing ahead with plans to produce a monthly CPI now the nation is facing its worst inflationary conditions in decades, and as the central bank eyes the data with a view to adjusting borrowing rates.
This would bring Australia into line with other western economies like the US, UK and Europe, which already release monthly data.
The ABS on Tuesday released an information paper on how it could work, ahead of the publication of the first monthly index on October 22 alongside the quarterly CPI report for the three months ended September.
The ABS stresses that the quarterly CPI will remain Australia’s key inflation measure, but concedes the monthly index can offer “more timely insights into household inflation”, with a few caveats.
Australian Statistician David Gruen said only around two-thirds of the items in the CPI basket will have up-to-date prices each month, leaving the remaining third relatively unchanged.
This is because of the way it gathers price data and seasonal effects such as school holidays, which can impact prices for holiday travel.
The ABS collects price data on a weekly, monthly, quarterly and annual basis.
For example, fast-changing food and petrol prices are gathered weekly and monthly, prices for eating out and services like hairdressing are tallied quarterly, and education fees and property rates are collected each year.
“For this reason, the average of the index in the three months for the monthly CPI indicator will not equal the index of the quarterly CPI,” the information paper said.
But could get pretty close, particularly if an annual comparison number is used.
Taking data from past quarterly CPI releases, the ABS was able to extrapolate a test run of monthly numbers.
It found annual changes in the monthly CPI and the quarterly CPI aligned closely, with the monthly data generally providing an earlier indicator of inflationary pressures.
For instance, the extrapolated annual change in the monthly numbers in the June quarter was 5.5 per cent in April, rising to 6.2 in May and 6.8 in June.
“As was the case for the annual CPI inflation rate of 6.1 per cent in the June quarter, the monthly CPI indicator movements were driven by price increases for petrol, new dwelling construction and food,” Dr Gruen said.
Another test, comparing the three-month movement of the monthly CPI to the quarterly CPI movement, was also a timely indicator of the inflation trend.
But seasonal effects and differences in the timing of price data collection mean there is still volatility month to month.
The ABS is also considering presenting a “seasonally adjusted” monthly CPI measure to smooth out those impacts.
The bureau is calling for feedback on its information paper until September 13.
