The last four months of the Melbourne Institute monthly inflation reading have delivered a total of a a 0.3% rise. The CPI is still weak. The PPI is weak and going to get weaker on oil and the AUD. Next year it’s resumed terms of trade falls, house prices and the dwelling bust. And now comes this via Westpac:
•Every five years or so the ABS revises the weights in the CPI based on its detailed household expenditure survey. This brings the CPI up-to-date with the latest spending patterns associated with changing technology and individual preferences as well as correcting a substitution bias that emerges over time as spending tends to rise (fall) for items where relative prices have declined (risen). •There is also a drift in the share of the expenditure classes in the CPI towards those that are rising more rapidly and away from the expenditure classes where prices are falling.
•The ABS has estimated that historically, this substitution bias is worth around ¼ of a percentage point on the annual rate of inflation at each re-weighting.
