RBA Cash Rate: 4.35% · 1AUD = 0.67 USD · Inflation: 4.1%  

0433 883 389

What is the Consumer Price Index (CPI)?

Inflation is an increase in the level of prices of the goods and services that households buy. It is measured as the rate of change of those prices. Typically, prices rise over time, but prices can also fall (a situation called deflation).

The most well-known indicator of inflation is the Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods and services consumed by households.

In Australia, the CPI is calculated by the Australian Bureau of Statistics (ABS) and published once a quarter. To calculate the CPI, the ABS collects prices for thousands of items, which are grouped into 87 categories (or expenditure classes) and 11 groups. Every quarter, the ABS calculates the price changes of each item from the previous quarter and aggregates them to work out the inflation rate for the entire CPI basket.

Groups in CPI Basket and Their Weights

Pictured: Selected groups in the CPI basket and their weight when compared against each other. In deciding which goods and services to include in the CPI basket and what their weights should be, the ABS uses information about how much – and on what – households in Australia spend their income. If households spend more of their income on one item, that item will have a larger weight in the CPI. For example, the ABS included smart phones in the CPI to reflect consumers taking advantage of advances in technology. Data on household spending across all items is only available approximately every five years or so.

CPI Graph

You’ll note a gradual increase of the cost of goods and services over time. It’s expected that wages and salaries will increase proportionally.

Inflation Graph

As stated, the RBA aims to achieve inflation at around 2-3%. Inflation data for the last 2 years is shown below, and the current cash rate (shown underneath) is usually consistent with the inflation trends.

Australian Inflation: February, 2024
  RBA Cash Rate: 4.35% · 1AUD = 0.67 USD · Inflation: 4.1%  

Related FAQs:

Blue Money Box
BeliefMedia

How is the Cash (Interest Rate) Determined?

Monetary policy involves using interest rates to influence aggregate demand, employment and inflation in the economy. It is one of the main economic policies used to stabilise business cycles. The Reserve Bank is responsible for monetary policy in Australia ..

Read More »
Mother and Son Painting
BeliefMedia

How is Compound Interest Calculated?

Compound Interest is the addition of interest to the principal sum of a loan – basically meaning that you pay interest on interest. Compound interest is standard practice when taking out a home loan.

Read More »
BeliefMedia

What is a Risk Fee?

A Risk Fee is a once-off charge payable by you when the amount of money you borrow for the purchase of a home or asset if higher than that lender’s acceptable LVR. For a home loan, this is usually 80% of the value of the home (80% LVR) …

Read More »

Share this FAQ

Share on Facebook
Share on Twitter
Share on Linkdin
Share on Pinterest