The Economy, Stupid Why the official inflation rate feels wrong
Oct 30, 2025
Kevin Fox, head of the UNSW Centre for Applied Economic Research, and Amy Oster, former Treasury economist and head of Policy Institute Australia, discuss the nuances behind the rising official inflation rate. They explore how perceptions of inflation can differ from reality due to frequently purchased items feeling more impactful. Kevin explains the complexities of the Consumer Price Index (CPI) and the recent integration of scanner data to improve accuracy. They also highlight the importance of rough price shifts since COVID and the need for ongoing adjustments in economic measures.
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CPI Reflects Aggregate, Not Individual, Spending
- The CPI weights come from a household expenditure survey that reflects aggregate spending patterns.
- That means the CPI measures average household inflation, not any one person's experience.
Mortgage Interest Was Excluded To Avoid Feedback
- Mortgage interest was removed from the CPI in 1998 to avoid an upward feedback loop with monetary policy.
- Including mortgage payments would make the CPI rise after rate hikes, causing the RBA to chase its own policy moves.
Quality Adjustments Lower Measured Inflation
- The ABS adjusts prices for quality changes, sometimes using hedonic methods for products like personal computers.
- Quality adjustments reduce measured inflation when newer models add value without higher prices.