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Description
Mind Map by mikaela.farrugia, updated more than 1 year ago
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Created by mikaela.farrugia
over 10 years ago
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3.2 (Part 2) Measuring the Inflation Rate
- Measuring the
Inflation Rate
- Measured by the ABS
- most common indicator for the
inflation rate is the Consumer Price
Index (CPI)
- Measured by the ABS
- The consumer
price index (CPI)
- CPI - measure of inflation or the average level
of prices of a basket of goods and services
produced by typical metropolitan households in
capital cities.
- Metropolitan households include employee,
pensioner, unemployed, employer.
- has important features
- regiman
- Prices Surveyed
- Weighting of Items
- Base Year
- regiman
- Regiman
- types of goods and
services selected to
measure changes in prices.
- CPI measures the prices changes of around 100,000 individual items
which are divided into categories including food, clothing and footwear,
housing, household contents and services, transportation, tobacco and
alcohol, health, recreation, education, communication and financial and
insurance services.
- types of goods and
services selected to
measure changes in prices.
- Base Year
- price changes are compared to the price at the start of the year
which is also known as the base year.
- CPI changes it is given a value equal to 100 index points and then is
put against the CPI at the start of the base year.
- price changes are compared to the price at the start of the year
which is also known as the base year.
- Prices Surveyed
- quarterly price survey is carried out
in a representative range of retail
outlets either private and public
sectors.
- quarterly price survey is carried out
in a representative range of retail
outlets either private and public
sectors.
- Weighting of Items
- Weighted according to its relative importance in
overall household expenditure.
- Expensive and frequently purchased items have a greater bearing. (food)
- Weights are reviewed every 5 years.
- Weighted according to its relative importance in
overall household expenditure.
- CPI - measure of inflation or the average level
of prices of a basket of goods and services
produced by typical metropolitan households in
capital cities.
- Limitations of the CPI as a
measure of inflation
- CPI data provides a guide to general retail
prices in the Australian economy
- Its accuracy though depends on several factors.
- Lack of
representativeness of
the prices.
- Only 100,000 selected consumer items
appropriate for households are included.
- Inflation rates may be a misleading
indicator for people who don’t live in
capital cities
- Only 100,000 selected consumer items
appropriate for households are included.
- Weighting limitations of items
in the regimen
- Weighting in the regimen may be inappropriate and
unreflective of the actual pattern of expenditure
- EG) if meat went up in price and caused CPI to rise faster, the
inflation figure may be misleading for vegetarian households.
- EG) if meat went up in price and caused CPI to rise faster, the
inflation figure may be misleading for vegetarian households.
- Weighting in the regimen may be inappropriate and
unreflective of the actual pattern of expenditure
- The effect of once-off volatile events
on the headline inflation rate
- Headline CPI - where prices changes in all 11 categories
are included in the calculation of CPI
- affected by 1 off events
- affected by 1 off events
- CPI fails to reveal the underlying rate of
inflation despite these events.
- Underlying Inflation Rate - measured by removing
volatile items affected by once off events such as some
fresh food items, from the normal CPI regimen in order
to obtain an inflation rate that is more truly reflective of
ongoing changes in the level of price.
- range of measures if the underlying inflation rate has therefore developed including the trimmed mean CPI and weighted
median CPI. Both have smaller regimens that exclude various unusual events such as floods and droughts.
- range of measures if the underlying inflation rate has therefore developed including the trimmed mean CPI and weighted
median CPI. Both have smaller regimens that exclude various unusual events such as floods and droughts.
- Headline CPI - where prices changes in all 11 categories
are included in the calculation of CPI
- Other Limitations
- doubts about the appropriateness of the base year
- Figures could appear more or less favourable.
- doubts about the appropriateness of the base year
- CPI data provides a guide to general retail
prices in the Australian economy
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