RBA Trimmed Mean CPI YoY

What is RBA Trimmed Mean CPI YoY?

RBA Trimmed Mean CPI YoY is the year-ended change in Australia's underlying price index, where underlying means persistent inflation without temporary spikes. The Australian Bureau of Statistics (ABS) publishes it inside each quarterly Consumer Price Index (CPI) release. It follows methodology adopted by the Reserve Bank of Australia (RBA). The RBA counts it and the weighted median as its most important underlying-inflation gauges.

It covers private households in the 8 capital cities as a weighted average, home to about two-thirds of private households. The quarterly index starts with the June 2002 quarter, and year-ended rates run from 2003. It measures rates of change, not price levels, city differences, rural areas or any single household. It strips out quality and mix effects, and markets judge it against the 2% to 3% band with a 2.5% midpoint.

When is it released and what happens each release?

Prices are collected throughout the reference quarter from shops, online sources, phone surveys, administrative data and scanner transactions. Volatile items are priced monthly, and each quarterly-priced item is always priced in the same month each quarter.

The ABS releases it quarterly about 4 weeks after quarter-end, on Wednesday at 11:30am AEDT in summer and 11:30am AEST in winter. Each release includes headline CPI plus trimmed-mean and seasonally adjusted indexes with contribution tables, and no fixed exception calendar exists beyond annual seasonal reanalysis. Original indexes change only for major errors, while the trimmed-mean series revises quarterly and base resets change index levels.

What moves RBA Trimmed Mean CPI YoY?

Moves come from 87 expenditure classes in 11 groups with weights updated yearly, while extremes are trimmed so persistent centre drivers matter most.

• Food and non-alcoholic beverages: captures groceries plus meals out and takeaway.

• Housing: captures rents, new-dwelling purchase by owner-occupiers, utilities and rates.

• Transport: captures motor vehicles, spare parts, automotive fuel and public transport fares.

• Health and education: captures medical goods and services plus school and university fees, often set once a year.

• Recreation and culture, communication: captures holiday travel and accommodation, entertainment goods and services, telecom equipment and services.

• Alcohol and tobacco, clothing and footwear, furnishings and household services, insurance and financial services: captures alcohol, tobacco, garments, furniture, appliances and insurance.

The December 2022 quarter, published 25 January 2023, shows trimming clearly with headline CPI up 1.9% quarterly and 7.8% yearly. Annual trimmed mean reached 6.9% on first print, up from 6.1%, later restated to 6.8% through routine revision. Biggest quarterly contributors were domestic holiday travel at 13.3%, electricity at 8.6% and international holiday travel at 7.6%, while vegetables fell 10.2%.

Goods rose 9.5% yearly and services 5.5%, so trimmed mean stayed below headline yet still set a series record since 2003. Do not treat the first-printed 6.9% as the final historical value.

How is RBA Trimmed Mean CPI YoY calculated?

1. Seasonal adjustment: Adjust each of 87 expenditure classes for regular seasonal patterns where identified, re-estimating factors each quarter with ARIMA where used.

1. Quarterly change: For each class, compute seasonally adjusted quarterly percent change from the prior quarter index.

1. Weights: Compute each class weight from its previous-quarter contribution to All groups CPI.

1. Rank and trim: Rank classes by quarterly change and trim 15% of weight from each tail, keeping the central 70%.

1. Average and cumulate: Average the kept centre by weight, dividing by 0.70 for the quarterly rate. Then cumulate quarterly rates into an underlying index for the YoY rate.

For example, five classes carry weights 15, 20, 30, 20 and 15. Changes of minus 4.0%, 0.4%, 0.9%, 2.5% and 18.0% average about 1.2% after trimming the tails.

1. Publication: Publish trimmed-mean indexes to 4 decimals and calculate moves to 1 decimal place.

Key point: Trimmed mean never excludes fixed items. Excluded items change quarterly with outlier moves, and the annual rate cumulates quarterly rates instead of trimming yearly changes.