How accurate is our official cost of living data?

It was said by a female rear admiral no less that “One accurate measurement is worth a thousand expert opinions.”

As well as rising to the top of the US Navy Grace Hopper was also a professor of mathematics, and she knew a thing or two about figures.

So what she might make of the alleged wonkiness of our most studied statistics - on which many political, economic and social decisions are based?

Grace died in 1992, aged 85; hence we can’t ask her, but now many are asking questions about our Consumer Price Index, the CPI, and how accurately it measures prices.

And while the CPI is derived from a basket of hundreds of goods and services (see how here), it is only an average, and you may well ask, “Just how average am I?”

The headline CPI has prices increasing by 3.5%, but the figure for so-called non-discretionary items is 4.5% (as explained in my blog last week about how some prices affect older Australians more).

But for many of us, the price hikes visible for petrol, housing, meat and fresh food have been little short of horrifying. Given the CPI is an average figure, the impact of prices on us as individuals may be higher - or perhaps lower.

“In addition, because the CPI is based on averages, including the basket of goods from which it is calculated, it does not necessarily reflect the price rises faced by individuals due to different locations or consumption patterns,” says Dr Angela Jackson.

She belongs to the think tank Impact Economics and Policy and has written a research paper: CPI Hiding Rising Living Costs for Many Australian Households.

Now there’s a campaign run by our sister consumer network, One Big Switch, calling for change and consistency, so that CPI better reflects the actual cost of living. At present, it does not include the cost of buying property, or of renting in the regions (it only includes capital city rents).

If you don’t think this affects you, One Big Switch says:

“The CPI is arguably the single most influential measurement of the rising cost of living for governments, banks, businesses and other policymakers. It determines everything from increases in wages and Centrelink payments to fiscal policy.”
 
Naturally, understanding statistical samples and indexes requires much mathematical confidence, but is it asking too much for ‘one accurate measurement’, as Grace Hopper put it?
 
Check out their campaign here & you can sign a petition for an urgent review of the CPI.
 
In the meantime, reflect on how price rises, including those provoked by post-COVID supply shortages, and even the war in Ukraine, may impact you and what you can, if anything, do about them?
 
 
Any information contained in this communication is general advice, it does not take into account your individual circumstances, objectives, financial situation or needs.