Why should Tobacco be included in Inflation calculations?

• 

  retiredfeline on 01/08/2014 - 02:04

  +2

  Do you know what the weighting for tobacco is? Is it significant? Also tobacco and alcohol can be regarded as proxies for various vices, yes people do have them. Unfortunately it does mean that one off changes can skew the figures a bit but that's the way the stats play out.

• 

  [Deactivated] on 01/08/2014 - 08:22

  +1

  It is based on our spending as a nation, 20% is 1 in 5 people smoking - that is a decent amount.

• 

  RockyRaccoon on 01/08/2014 - 08:58

  +1

  This is a measure of inflation on a parcel of goods.
  Lets say we eliminate Tobacco and Alcohol because they are used by only 20% of the population.

  IF you remove items that were traditionally part of the CPI calculation then over time what the hell are you now measuring.

  And then at what percentage do you determine a product is to be included?

  You need to look at the total basket of items.

  Using your argument then should we include restaurant meals? or Education?

  Given that only 20% of the population would using education that incurs a cost (Not population that pays eg 2 parents paying for 1 child) So if education goes up because the government cuts subsidies, then this shouldnt be included?

  You also need to look at the weighting given to the items. Tobacco and Alcohol arent included at 100% they are weighted which adjusts for percentage impact on the average budget.

  Now if you want to manipulate the CPI to make it look like there is no inflation, so YOU can save interest then thats not fair either.

  If you want it this way, become a member of PUP, as that's probably his way of working economics. :)

  • 

    kingsville on 01/08/2014 - 09:11

    +4

    The ABS continually updates the basket of goods used to calculate the CPI to make sure that the CPI basket remains relevant to Australian purchasing patterns:
    http://www.abs.gov.au/ausstats/[email protected]/mediareleasesbyRelea…

    Tobacco was 3% of the basket in 1998 and is 2.3% in the current CPI calculation - so although ciggies had the largest price rise, the impact on the CPI basket is small.

    • 

      Bystander on 01/08/2014 - 20:20

      What I find more concerning is the way that the CPI is adjusted.

      The ABS continually updates the basket of goods used to calculate the CPI to make sure that the CPI basket remains relevant to Australian purchasing patterns

      It would seem that when a change is made it tends to reduce the rate reported. From memory the last change included amongst other things an adjustment to increase the weighting for housing costs. This could be very timely as it looks quite possible that we are about to enter into a prolonged period of declining housing costs. Hence a lower reported CPI.

      I don't have the figures for Australia but in the US the official rate is quoted around 2%. If the 1990 method of calculating CPI was still used then it would be almost 6%. And if the 1980 method was used then US inflation is running at 10%!
      http://www.shadowstats.com/alternate_data/inflation-charts
      Adjustments to the method of calculation can have dramatic results.

      Although the CPI isn't supposed to be a measure of the cost of living it's interesting to see how much difference there can be. Again in the US over the last 14 years CPI has risen 39% and yet this chart shows that the cost for basic needs has risen 86.6% over the same period.
      http://www.financialsense.com/sites/default/files/users/u229…

      • 

        RockyRaccoon on 02/08/2014 - 07:34

        +1

        all cPI's need to be adjusted according to changes in peoples behaviour/lifestyle

        For example, spending on Telecommunications in the 1920's vs the 2010's. Takeaway food which is now seen as a basic vs the friday night fish and chips once a month in the 50's. Or even educational expenses of the same time when leaving school at age 15 was the norm.

        Even socially aware groups now declare that luxury items of the 1920's are now basic needs of this century.

        Your guild based needs index is fairly simple

        1. Food 30%
        2. Clothing 10%
        3. Shelter 30%
        4. Energy 30%

        Imagine the uproar by the poverty support groups if this was the basis for evaluating pensions. While the shift might be greater over time, the base pension would be much lower, ala Andrew Forrest and the OP. No tobacco Alcohol, Education, TV, Phones Internet etc.

        The issue is that when changes are made to the CPI, is their a political influence on the degree of that change and the weighting given. And as the OP was wanting a lower CPI to influence their interest rates, a societal influence at the time of adjustment.

      • 

        Bystander on 02/08/2014 - 10:27

        +1

        @RockyRaccoon:

        all cPI's need to be adjusted according to changes in peoples behaviour/lifestyle

        Agreed. But it's the way that it's adjusted that I would question.

        Your guild based needs index is fairly simple

        Yes and I think that is the strength of the GBNI. It tracks the cost of basic essentials that everyone needs. Not everyone needs alcohol, tobacco, etc.

        …if this was the basis for evaluating pensions…the base pension would be much lower

        I don't think anyone would suggest that this alone should be used for adjusting pensions, but if it were then pensions would be higher. I imagine that poverty support groups would approve of that.

        The issue is that when changes are made to the CPI, is their a political influence on the degree of that change and the weighting given

        Exactly. Whether or not there is any political, or other, influence we will never know. But it does seem to be coincidental that adjustments to CPI are government friendly.

• 

  pjetson on 01/08/2014 - 09:53

  I can't find an actual list of what is in the CPI basket (is it a state secret?), but it appears that restaurant meals are included, while energy and utility bills, various taxes (like motor vehicle registration) and petrol are probably not included.

  EDIT: Apparently, I'm wrong on what's in and out - I found the list http://www.abs.gov.au/ausstats/[email protected]/Lookup/6440.0Appendi…

  • 

    kingsville on 01/08/2014 - 10:40

    if you download the guide, all the weightings are in App1:
    http://www.abs.gov.au/AUSSTATS/subscriber.nsf/log?openagent&…

    • 

      pjetson on 01/08/2014 - 12:15

      Isn't this saying that in 2011, the average family was spending $1371.30 every week on these items.

      The average wage in 2011 was less than that.

• 

  Charity on 01/08/2014 - 10:05

  You make the naive assumption that all the other stats are clean numbers. They should only be used as an extremely rough guide. Heck, even you want to bend the numbers because you don't think certain things should apply.

• 

  [Deactivated] on 01/08/2014 - 12:06

  +1

  20% users put pressure on the inflation rate which will mean we pay more in loan interest, employers are nagged for pay increases.

  Considering that same article you quoted noted that our current rate of inflation is below the long-term average of 5.23%, I'd say that tobacco users contribute next to nothing to inflation.

  Also, do you have any evidence that employers are facing unusual problems with labour cost (aside from anecdotal stories in the front page of The Australian), or that we're being slugged with high interest rates?

  • 

    Baysew on 03/08/2014 - 14:20

    I'd say that tobacco users contribute next to nothing to inflation.

    Yes all that tobacco just goes up in smoke.