We will have another, possibly more important measure of price movements in the economy to contend with when the June quarter Consumer Price Index is published on July 25 by the Australian Bureau of Statistics.
In a major development, the ABS and the Reserve Bank of Australia (RBA) have agreed that the ABS will publish – on behalf of the RBA – the central bank's trimmed mean and weighted median consumer price measures.
These are its versions of quarterly inflation that it uses in its interest rate setting discussions.
The ABS said yesterday this step was being taken to enable a more timely release of the RBA measures, making them available at the same time that the quarterly Consumer Price Index (CPI) is released.
Up till now the RBA has published its two measures later on the day of publication of the CPI.
The Bank's two measures have assumed greater importance than the CPI because they attempt to strip out as many extraneous and seasonal factors as possible, to produce a pair of figures that as accurately as possible measures price movements in the economy, especially in the non-tradeables sector.
More and more commentators and analysts are using the RBA's figures (and trying to anticipate them) because of the obvious importance of the bank's own figures in its interest rate decision-making process.
The RBA's figures will not replace the CPI, which was first compiled by the ABS back in 1960, with information extending back to 1948.
But the joint publication will mean two figures will be reported and over time the attention will concentrate more on the RBA's measures.
The CPI will still be relevant because so many other decisions are based on it, such as indexation of excise on alcohol and tobacco.
The CPI measures quarterly changes in the price of a 'basket' of goods and services, which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households).
This 'basket' covers a wide range of goods and services. The CPI measures actual contemporary movements in prices and as such reflects any real world volatility that may occur.
This can make it hard for analysts to distinguish the noise of short-term fluctuations (as we saw with bananas and petrol in 2006) from the underlying inflationary trend.
In its analysis of the Australian economy, the RBA uses several underlying inflation measures to look at the trend in price changes.
These include both simple exclusion-based measures which exclude recognised volatile items such as fruit, vegetables and fuel, as well as statistical measures such as the trimmed mean and weighted median.
The exclusion-based measures have been calculated and published as analytical series by the ABS since December quarter 1986.
The RBA trimmed mean and weighted median series aim to reduce the effect of large quarter to quarter price movements of individual items within the CPI.
Both measures use ABS CPI data, with adjustments made to exclude components with the largest price changes each quarter.
Components that are identified as having a seasonal pattern are seasonally adjusted each quarter.
The ABS says it will now incorporate these measures in its quarterly publication Consumer Price Index, Australia (cat. no. 6401.0), commencing with the June quarter 2007 issue to be released on July 25.
In publishing these measures, the RBA methodology will be retained except that the ABS will now adopt concurrent seasonal adjustment for the series.
That means that from the June quarter of this year, the ABS will undertake concurrent seasonal adjustment using the history of price indexes up to the current quarter.
The ABS said concurrent seasonal adjustment had not previously been possible as the RBA did not have access to the current quarter CPI data prior to its release.
Unlike the CPI, which is not seasonally adjusted, these series are subject to revision. Where revisions to the series occur, these will be published by the ABS.
The RBA will maintain responsibility for the design of the measures and will answer queries on their design and use.
The ABS will be responsible for calculating the measures and will answer queries on the compilation and publication of the measures.
The ABS will publish the following statistics for both the trimmed mean and weighted median measures:
• percentage change from the previous quarter
• percentage change from the corresponding quarter of the previous year
• percentage change from the previous financial year.
The ABS will publish these statistics both in the Consumer Price Index, Australia (cat. no. 6401.0) and on its website.
The historical numbers for both series presented in this information paper are as they were published by the RBA for the March quarter 2007.
In the June Quarter 2007 release these figures may be revised.
These revisions will result from the ABS applying current quarter seasonal factors and using price changes and expenditure weights to a higher level of precision, affecting rounding.