CPI update

I was attempting to create a 'Make your own CPI' spreadsheet that uses the ABS price indexes for each commodity group and allows you to assign your own weighting.  I was also using the weighting from the German CPI as a comparison (which weights housing as 30% of the basket, while Australia's CPI has housing at 19% of the basket).

But there was a problem.

The price indexes for each commodity group were so completely manipulated by quality adjustment (and any other unknown statistical manipulation that occurs) that you could not dramatically change the final CPI figure.  Using German weightings I was within one percent (of the total change) over a 10 year period.

Have a look at the house purchase index used for the CPI against the ABS' own capital city house price index in the graph below.  The extreme magnitude of the disparity is quite shocking.  The index used for the CPI increased by 36% over the 7 year period, while the capital city median price index increased 92%.

What lesson should we take away from all this?  I for one will never trust an official statistic without first understanding the methodology behind it.