worst in the developed world according to a damning critique by the Reserve Bank which has asked an inquiry to recommend an overhaul.
The Bank's submission to the regular review of the CPI, made public on its website, says at times it has been seriously misled by inflation figures "that subsequently proved not to be representative".
It wants the CPI published monthly rather than quarterly, whatever the expense, and notes that Australia and New Zealand are the only developed countries not to do so and that Australia is only G20 nation not to do so.
Countering an objection from the the Bureau of Statistics that the cost of moving to monthly figures would be "considerable" it says the cost would be "small relative to the benefits" of getting its monthly interest rate adjustments right.
It says while much of the data used in the creation of the CPI is already collected monthly, it is "not published until as much as three months later, and then only as part of a quarterly average."
"In recent years there have been a couple of instances of quarterly readings for inflation that subsequently proved not to be representative of the general trend,"... the Bank says. Monthly data would "allow earlier identification" of rogue figures.
Of particular concern to the Bank is the so-called "D&L" component of the CPI which is meant to measure the price of deposit and loan facilities. It says alone in the developed world the Australian Bureau of Statistics includes in it an indirect estimate of interest rate margins, which bizarrely is sometimes negative, "implying a negative price".
As the forth biggest component of the CPI it says the D&L has at times dramatically skewed its outcome.
"For example, the D&L rose 16 per cent over the year to September 2008, adding almost three quarters of a percentage point to CPI inflation," it says. "More recently it fell 15 per cent over 2009, subtracting three quarters of a percentage point."
Enhancing the Bank's frustration at the CPI it has found that the D&L usually moves up whenever it increases interest rates, putting further upward pressure on the CPI and adding to the apparent pressure for it to increase rates further.
It wants the D&L reassessed or "removed from the CPI, or at least the interest margins component removed".
It also wants the CPI seasonally adjusted, pointing to obvious seasonal patterns including an apparent jump in education prices at the start of each year and an apparent drop in pharmaceutical prices at the end of each year associated with the workings of the Pharmaceutical Benefits Scheme.
The Bank is also frustrated by how rarely the basket of goods measured in the CPI is updated, saying the ABS now only updates its assessment of spending patterns every six years, "significantly less frequently than other advanced economies".
The submission includes a graph showing that the official view of how much Australians spend on computing and audiovisual equipment is always seriously out of whack by the time it is adjusted.
It says if the ABS won't survey spending patterns more frequently it could at least use scanner data from shops to make adjustments as it says do other countries.
The Bureau is publishing all submissions to the inquiry on its website in order to foster what it calls "an informed, robust and consultative process".
Published in today's SMH
. If you thought the consumer price index measured the cost of living..
. The living cost index that won't index living costs
. Do you think the CPI is a joke?