Monthly reporting would benefit decision-makers
CPA Australia is calling for inflation data to be published monthly, saying it would benefit the RBA and other financial decision-makers.
On Tuesday, RBA governor Philip Lowe raised the official cash rate 50-basis points, noting inflation in Australia had “increased significantly”.
Current ABS figures show annual inflation reached 5.1% in the March 2022 quarter. Released on 27 April, the current figures measure the percentage change from the March 2021 quarter to the March 2022 quarter, and from the December 2021 quarter to the March 2022 quarter.
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Noting inflation was at a 20-year high, CPA, the peak body for certified practising accountants, said the Reserve Bank could not afford to wait until the release of June quarter CPI figures, due out on 27 July, before raising the cash rate.
Tuesday’s cash rate decision highlighted “a major flaw in the way Australia reports inflation,” it said. CPA noted Australia was one of only a few advanced economies reporting CPI quarterly, and that RBA, government and businesses need access to more timely inflation data.
CPA Australia senior manager business policy Gavan Ord (pictured) said in reaching the June decision, RBA relied on CPI figures for the March 2022 quarter. These same figures applied when the RBA hiked the cash rate by 25-basis points in May and will also apply when the RBA board meets in July.
“Because Australia only reports CPI data quarterly, we have a limited understanding of the impact May’s interest rate rise had on inflation. By contrast, the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England, for example, all have access to data within weeks of making a decision,” Ord said.
Current indicators suggest inflation will continue a “sharp upwards trajectory”, Ord said.
Lowe said in the RBA Board’s June statement that inflation was expected to increase further, before moving back towards the 2% to 3% target range next year.
“However, if the RBA had access to monthly CPI figures, like most advanced economies, it would be in a much better position to form a view and respond effectively. This would also give governments, businesses and other organisations more timely and accurate information to influence financial decisions,” Ord said.
CPA Australia is calling on the Labor government to increase the frequency of CPI reporting to monthly, he said.
“We’re in a high inflation environment; we need to be agile. This necessitates a degree of urgency to this proposal. Relying on quarterly CPI data when the rest of the world gets it monthly, is like waiting at your letterbox for updates when your neighbour gets them on their phone,” Ord said.
Ord acknowledged that moving from quarterly to monthly reporting may require an increase in funding for the ABS, which collects and reports CPI data.
“However, we believe the benefits far outweigh the costs. We’re asking the government to implement this proposal as part of its first budget later this year,” Ord said.
An ABS spokesperson told MPA there was increasing interest in understanding cost of living pressures and the implications for monetary and fiscal policy.
Until recently, the costs to produce a monthly CPI “have been prohibitive”.
“The use of new data sources to produce the CPI have reduced data collection costs, enabling the possibility of producing a more frequent measure of inflation. In particular, the use of scanner data and web-scraping (automated) data collection techniques provides high frequency data at a lower cost,” the ABS spokesperson said.
The ABS said in March it was examining the feasibility of producing a monthly CPI which would include the most significant items in the basket of goods and services measured. This would complement the current quarterly CPI.
“Work is progressing well to develop a partial monthly CPI indicator and the ABS is planning to publish the work and methodology in an information paper in August 2022. The monthly CPI indicator being explored by the ABS can be considered a partial measure of the quarterly CPI as not everything included in the CPI basket will be measured on a monthly basis,” the ABS spokesperson said.
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CPA Australia is the leading professional accounting body. With over 170,000 members in more than 100 countries and regions, its core services include education, training, technical support and advocacy.
