RBA Trimmed Mean CPI QoQ

What is RBA Trimmed Mean CPI QoQ?

The RBA Trimmed Mean CPI QoQ measures Australian underlying inflation, the broad price trend after stripping each quarter's extremes. Each quarter it ranks 87 expenditure classes by seasonally adjusted quarterly change, drops 15% of weight from each tail and averages the middle 70%. It never drops a fixed list, so the trimmed set changes every quarter with the outliers.

Arabic media call the concept core inflation. The series starts with the June quarter 2002 on a 2011 to 2012 base of 100.

When is it released and what happens each release?

The index compares the current quarter with the previous quarter after seasonal adjustment. Prices are collected during the reference quarter, mostly quarterly, some monthly and a few yearly, while rents use a matched quarterly sample.

It appears inside the CPI on the last Wednesday of the month after quarter end, at 11:30am Canberra time, after an embargo and closed lockup. Each release prints headline CPI, the Weighted median companion gauge, group, city, goods and services splits and data tables. Original indexes are revised only for serious errors, while adjusted estimates revise each quarter and move the trimmed mean.

What moves RBA Trimmed Mean CPI QoQ?

No item is always in or out, since each quarter's ranking decides what the middle 70% keeps. Weights mirror each class's share of spending.

• Food and non-alcoholic beverages: a core basket group, including fruit and vegetables.
• Housing: rents and new dwelling purchases, among the most watched parts.
• Transport: automotive fuel, which swings sharply between quarters.
• Health, education, recreation and culture: medical and hospital services plus holiday travel and accommodation.
• Clothing and footwear, furnishings and communication: furniture, household equipment and computing equipment.
• Alcohol and tobacco, insurance and financial services: tobacco, insurance and child care.

The December quarter 2023 release of January 31, 2024 put the trimmed mean at 0.8% for the quarter after 1.2% in September. It reached 4.2% over the year after 5.1%, down from a 6.8% peak in December 2022, while headline CPI rose 0.6% and 4.1%. Tobacco at 7.0%, new dwellings at 1.5%, domestic holiday travel at 3.9% and medical and hospital services at 1.2% led the quarter.

Tradables fell 0.7% on furniture at 4.3% and international travel at 1.5%, so the core beat headline because trimming removed the soft tail. The RBA February 2024 forecast path for trimmed mean inflation read 4.2 then 3.6, 3.1, 3.0, 2.8 and 2.6.

How is RBA Trimmed Mean CPI QoQ calculated?

1. Seasonally adjusted moves: compute each of the 87 classes' quarterly change after removing the usual seasonal pattern.
2. Relative weights: give each class its prior-quarter share of headline CPI, so weights sum to 100%.
3. Sort and cumulate: rank classes from smallest to largest change and cumulate weights along that order.
4. Trim tails: drop classes below 15% and above 85% of cumulated weight, partly keeping any class straddling a cut line.
5. Average: take the weighted average of the middle 70%, dividing by 70%, and publish the annual change beside it.
6. Toy case: five classes move -2.0%, 0.2%, 0.6%, 1.0% and 8.0% with weights of 10, 30, 30, 20 and 10%. Headline is 1.04%, and trimming the bottom and top 15% of weight leaves about 0.54%.

Key point: it never permanently drops fixed items like food or fuel, since only that quarter's outer tails are cut. The zero trim is headline CPI itself, and the 50% trim is the weighted median.