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Tuesday, 10 December 1974
Page: 3264

Senator GIETZELT(New South Wales)For the information of honourable senators I lay on the table the transcript of evidence placed before the Joint Committee on Prices relating to its inquiry into the consumer price index. I ask leave of the Senate to have the statement relating to the inquiry incorporated in Hansard.

The DEPUTY PRESIDENT-Is leave granted? There being no objection, leave is granted. (The document read as follows)-


The causes and consequences of and the cures for inflation are subjects of continuing debate in the Parliament.

Most speakers use changes in the Consumer Price Index (CPI) as a measure of the rate of inflation, yet few people appear to be aware of the way in which the CPI is compiled or what it seeks to measure.

In October of this year the Joint Parliamentary Committee on Prices invited three senior officers of the Australian Bureau of Statistics (ABS) to brief it on the CPI. The Hansard of this briefing session has been tabled today and the Committee hopes that honourable members, journalists and others will take the opportunity to read this document. Before presenting the recommendations of the Committee I would like to highlight a number of salient points regarding the CPI.

First, the CPI measures the degree of change over time in prices for a selected group of goods and services which represent the consumption patterns within the economy. The whole idea of measuring price change is to keep constant all variables (e.g. quality) except the price itself.

Secondly, the CPI is compiled by selecting a fixed combination of goods and services which are of constant quality, and then determining the aggregate cost of that combination or basket of goods and services. The CPI does not immediately reflect the substitution that consumers might make between individual items as a reaction, for example, to changes in relative prices. If the price of potatoes trebles, as it has in recent times in Australia, then consumers could reduce consumption of this item by increasing their consumption of rice, for example. Similarly the housewife may substitute chicken for beef or lamb for beef when the relative prices of these commodities change. Neither does the CPI promptly reflect changes in life style or consumer tastes. For example, if consumers suddenly double their consumption of ice cream the CPI would not register this change promptly.

Thirdly, prices are regularly collected by officer of the ABS for a specified basket of goods and services which arc weighted' according to their relative importance. Items within the basket are selected by using statistics of estimates of average consumption, statistics of imports, exports, primary and secondary production and censuses and surveys of retail sales. Every four to five years the group of items within the Index is reviewed to update the weighting pattern and list of items. This is called re-basing. In Great Britain this is done every year but less frequently in many other countries. The Australian CPI was last re-based in December 1 973.

The specified basket of goods and services used to compile the CPI is derived mostly from estimates of average consumption. In most developed countries the weighting pattern is derived from the findings of household expenditure surveys but in Australia the basket is obtained from indirect sources such as production and imports. The ABS is now engaged on Australia's first official comprehensive household expenditure survey. The ABS considered that the weighting pattern devised had been reasonably adequate for the purpose of the CPI. However, since the CPI is likely to become more complicated, it is desirable to complete a household expenditure survey, which will of course supply data for other important uses.

The first household expenditure survey will be followed immediately by a smaller survey. During the conduct of that smaller survey the ABS will consider the future frequency and scope of each survey.

The Committee recommends that resources be made available to the Australian Bureau of Statistics to carry out further expenditure surveys as soon as the frequency is determined from work being carried out at the present time.

Fourthly, at present the CPI is published quarterly. I might add here, however, that the food group of the CPI is published monthly. Most developed countries publish their CPI on a monthly basis and the Committee considers it would be appropriate for the Australian CPI to be published also on a monthly basis. This would allow more frequent assessment of anti-inflationary policies. The Committee was informed that preparation of a monthly CPI would require the equivalent of a further 25 full-time staff.

Fifthly, the Committee also recognises that as the CPI is the only compiled for the State capital cities and Canberra it would seem appropriate to include some other large centres and rural cities such as Broken Hill and Bendigo. The Committee recommends that the priority to be given to this work should be referred to the proposed Australian Statistics Advisory Council ( ASAC) when it is established.

The Committee also sees merit in the preparation and publication of half-yearly intervals of an expenmental index of food prices for country towns. An index of this type is presently prepared annually for about 200 country towns and is available on request. The Committee also recommends that this matter should be referred to the ASAC.

The Committee therefore recommends that:

(a   ) resources be made available to the Australian Bureau of Statistics to carry out further expenditure surveys as soon as the frequency is determined from work being carried out at the present time;

(b)   the Australian Bureau of Statistics be allocated the necessary resources to enable preparation and publication of the Consumer Price Index on a monthly basis;

(c)   the following be referred to the proposed Australian Statistics Advisory Council when it is established:

(i)   the widening of the Consumer Price Index to reflect price changes in other major cities and representative country towns; and

(ii)   the publication of the experimental index of food prices for country towns at half-yearly intervals.

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