Omari Gates
The Consumer Price Index (CPI) is a measure of inflation, calculated by the Australian Bureau of Statistics (ABS). The CPI measures the prices paid by households for goods and services, including rents. The ABS produces the CPI each quarter, with a monthly indicator that includes updated prices for around two-thirds of the items in the CPI basket. The latest CPI data from the March quarter of 2025 shows that the ABS will release a complete monthly CPI in late 2025.
| Characteristics | Values |
|---|---|
| Definition | The Consumer Price Index (CPI) is an indicator of inflation that captures price changes for the goods and services that households typically buy. |
| Calculation Body | The CPI is calculated independently by the Australian Bureau of Statistics (ABS). |
| Calculation Frequency | The ABS produces the CPI each quarter and publishes a monthly indicator that includes updated prices for about two-thirds of the items in the CPI basket. |
| Data Sources | The ABS incorporates a survey of approximately 4,000 rental properties collected from real estate agents and a new dataset that includes approximately 480,000 rental properties across all capital cities. |
| Measurement Period | The CPI measures prices paid by households for goods and services during a particular period, such as a month or quarter. |
| Target Range | The Reserve Bank Board sets monetary policy to maintain annual consumer price inflation between 2% and 3%. |
| Latest Data | The latest CPI data available is for the March quarter of 2025. |
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What You'll Learn
How is CPI calculated?
The Consumer Price Index (CPI) is a common measure of inflation, indicating the health and direction of the economy. It is calculated and published monthly by the Bureau of Labor Statistics. The CPI measures the average change in prices paid by consumers over time for a basket of goods and services. It does not attempt to quantify all the factors that affect the cost of living and is sometimes termed a conditional cost-of-living index.
The calculation of the CPI involves several stages. Firstly, the urban areas of a country are divided into multiple geographic areas, called index areas. The set of goods and services purchased by consumers is then categorised into item strata, including commodities, services, and housing. The number of basic items used for the calculation exceeds the number of strata, as entry-level items are used for calculating basic cells for specific items such as health insurance retained earnings. This results in thousands of item-area combinations that form the basis for calculating basic indexes.
In the second stage, aggregate indexes are calculated by averaging across subsets of these item-area combinations. For instance, the aggregate index for a city is derived by aggregating the basic indexes for each item in that city. The weights for this aggregation stage are determined by annual reference-period expenditures on the item strata, calculated using expenditure data from consumer surveys. Most information on price changes comes from these consumer surveys, but some strata, such as airline fares and used vehicles, rely on secondary sources for price data.
Each month, the consumer survey data is processed to obtain price relatives, which measure short-term price changes for all basic indexes. The CPI then employs an index number formula, typically a geometric mean index formula, to calculate the average price change for the items in each basic index's sample. This formula involves calculating the weighted geometric mean of price ratios (the current price of an item divided by its price in the previous period) with weights equal to the expenditures on those items during their sampling periods.
It is important to note that the CPI has certain limitations. For instance, it does not measure differences in price levels or living costs between areas but only time-to-time changes in each area. Additionally, it does not account for all factors that influence living standards, such as social and environmental changes or income tax variations.
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What is the role of the Australian Bureau of Statistics (ABS)?
The Australian Bureau of Statistics (ABS) is Australia's national statistical agency. It provides official statistics on a wide range of economic, social, population, and environmental matters of importance to the country. The ABS has an important leadership role, coordinating statistical activities and collaborating with official bodies in the collection, compilation, analysis, and distribution of statistics.
The ABS plays a crucial role in informing decisions on significant issues, aiming to create a more informed community, foster efficient markets, enhance economic growth and productivity, improve policy development and evaluation, and enable targeted and efficient service delivery. It also provides an advisory role to Australia's Department of Foreign Affairs and Trade (DFAT) in framing statistical development assistance.
One of the key responsibilities of the ABS is calculating and publishing the Consumer Price Index (CPI), a measure of household inflation in Australia. The CPI indicates the prices paid by households for goods and services consumed during a specific period, such as a month or quarter. The ABS has recently incorporated a new dataset for the Rents series within the CPI, which includes approximately 480,000 rental properties across all capital cities, providing a more accurate reflection of actual rents paid rather than advertised prices.
Additionally, the ABS is committed to transparency and accessibility. It releases information to the public through various channels, including its website and press releases. The ABS also engages in educational initiatives, such as the "Big Data, Timely Insights: Phase 2 (BDTI2)" program, where it plans to release a complete monthly CPI in late 2025. This program demonstrates the ABS's dedication to utilising advanced data analytics to deliver timely insights to the public.
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How often is CPI measured?
The Consumer Price Index (CPI) in Australia is measured by the Australian Bureau of Statistics (ABS). The CPI measures the prices paid by metropolitan households for a "basket" of goods and services, which are divided into the following groups: food, alcohol and tobacco, clothing and footwear, housing, household contents and services, health, transportation, communication, recreation, education, and financial and insurance services.
The CPI is measured on a quarterly basis. However, in July 2022, the ABS incorporated a new data source to measure the Rents series in the monthly CPI indicator and the quarterly CPI. The Rents series data is now updated monthly and includes approximately 480,000 rental properties across all capital cities. This data is used to produce the CPI Rents series, which measures the 'price' being paid by all types of households that rent, including new and existing renters in the private and government sectors.
The ABS also releases a monthly CPI indicator, which may be routinely subject to revision. A complete monthly CPI will be released in late 2025 as part of the Big Data, Timely Insights: Phase 2 (BDTI2) program.
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How does CPI relate to inflation?
The Consumer Price Index (CPI) is a measure of the average change in prices paid by consumers for goods and services over a given period. It is designed to reflect the inflation rate experienced by consumers in their day-to-day living expenses. The CPI is a valuable tool for policymakers, financial markets, businesses, and consumers.
The CPI is calculated by collecting and analysing around 80,000 price quotes from various sectors, including retail stores, service establishments, rental units, and doctors' offices. It covers a wide range of items, from food and beverages to housing, transportation, medical care, and education. The data is used to track prices and understand substitution effects, where consumers shift their spending away from products that have become relatively more expensive.
The CPI is essential for understanding and managing inflation. It is used to adjust payments to consumers, ensuring they can purchase a basket of goods and services at today's prices, equivalent to what they could have bought in an earlier period. This adjustment helps maintain consumers' purchasing power in the face of inflation. Additionally, the CPI is used to adjust income tax structures, preventing inflation-induced increases in tax rates.
The CPI is also crucial for economic decision-making and policy formulation. Financial market participants use the CPI to gauge inflation and make informed investment decisions. The Federal Reserve, for example, relies on CPI data to determine monetary policy. If inflation deviates from the target rate, the Fed may adjust the Fed funds rate accordingly.
In Australia, the CPI is calculated quarterly and annually by the Australian Bureau of Statistics (ABS). The ABS incorporates various data sources, including a Rents series that measures the actual rents paid by households rather than advertised prices. This comprehensive approach ensures that the CPI accurately reflects the inflationary environment in Australia.
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How does CPI measure rental prices?
The Consumer Price Index (CPI) is a measure of household inflation, which is used to determine the cost of living and residential and commercial real estate rent adjustments. It is calculated by the Australian Bureau of Statistics (ABS) and measures the price changes of a "basket" of goods and services that a typical consumer buys. This basket includes housing, food and beverages, recreation, transport, health, alcohol, furnishings, insurance, education, clothing, and communication.
Rental and housing costs are a significant part of the basket of goods assessed when calculating the CPI. The ABS measures changes in housing costs in the Total Value of Dwellings, which provides estimates of the total value, number, and mean price of Australia's dwellings, as well as median prices and counts of residential property transfers. The CPI measures the prices paid by all types of households that rent, including new and existing renters, and accounts for both privately owned and government-owned rental dwellings.
The CPI measures actual rents paid rather than advertised prices. This is because advertised rents tend to reflect the dynamic end of the rental market, where price changes for new tenancies can be more volatile than those experienced by renters with existing tenancy agreements. The ABS previously measured the Rents series on a quarterly basis using a survey of approximately 4,000 rental properties. However, since July 2022, the ABS has incorporated a new data source that includes approximately 480,000 rental properties to produce the CPI Rents series across all capital cities.
The CPI is used to inform monetary policy, with the Reserve Bank of Australia (RBA) noting that "an inflation target is the centrepiece of the monetary policy framework." An inflation target involves setting a target cash rate, which influences other interest rates. The CPI is also used to index or change government and private payments and costs so that their value remains aligned with the inflation rate. This includes rental agreements, where property owners can make fair rental adjustments based on changes in the CPI rate.
It is important to understand the CPI rate that will be applied to a rental agreement, such as the national weighted average of capital cities or the individual capital city rate. The base index rate is usually the CPI rate at the time the lease was signed, and the current CPI rate is the most recent index rate published by the ABS. With these two figures, a formula can be used to calculate the rent increase.
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Frequently asked questions
The Consumer Price Index (CPI) is an indicator of inflation that captures price changes for goods and services that households typically buy.
The Australian Bureau of Statistics (ABS) calculates the CPI independently.
The ABS produces the CPI each quarter and publishes a monthly indicator that includes updated prices for about two-thirds of the items in the CPI basket.
The CPI Rents series measures actual rents paid rather than advertised prices. It includes data from approximately 480,000 rental properties across all capital cities.
The latest update to the CPI rates in Australia was for the June 2024 quarter, with the next update scheduled for late 2025.
