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What is inflation? Why is it so high? And what is the RBA's plan to
bring it back down?
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If you’re the person in your household who usually goes grocery shopping or fills the car, you don’t need a statistician to tell you that prices are going up.
Nonetheless, the latest official reading of rising consumer prices is out on Wednesday from the Australian Bureau of Statistics.
This is called the Consumer Price Index, or CPI.
“The way to measure inflation in Australia is to look at the different categories that consumers use to spend their money,” explains AMP senior economist Diana Mousina.
The numerator at ABS goes around all the capital cities and checks the latest prices for this “basket of goods,” with about 100,000 different individual prices collected every three months.
The statisticians then calculated how much had changed since the last survey three months earlier.
Each year, the ABS also checks what Australians typically spend the majority of their money on, and ‘weights’ the CPI accordingly, thus reflecting where the average household spends the majority of its money.
“The things that have the greatest weight in the Consumer Price Index are things like food, housing, utilities, education and health,” Ms Mousina said.
But CPI doesn’t cover everything we spend a lot of money on.
The CPI does not include the price of the existing house, because it is considered an asset, not a consumer good.(ABC News: Ian Cutmore)
“It doesn’t take into account the cost of the land or, therefore, the cost of the mortgage or how much you paid for the mortgage,” says Mousina.
“The reason the ABS doesn’t include the cost of land, which is the biggest component driving house prices, is because house prices are considered an asset, and consumer price data is meant to look at the day-to-day spending that consumers make on goods and services, not on assets.”
How high is inflation today?
The latest inflation figure, calculated for the first three months of the year, was 2.1 percent.
For the year to March, that means the price of a basket of goods rose 5.1 percent.
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