Learn more about the annual CPI and what it really means to you, and more specifically, in relation to your pension.
What is the CPI?
Simply defined, the Consumer Price Index (CPI) measures the change in the price of a fixed basket of goods and services acquired by household consumers from one period to another. The Australian Bureau of Statistics (ABS) measures the cost of a set list of items in order to calculate a CPI rate for each of the eight State and Territory Capital Cities. They also calculate a weighted average of the eight Capital Cities, which is generally the CPI that we hear about in the media.
The CPI rate that is used to adjust your State Super pension each year is the All Groups Sydney Index which simply means it is a CPI rate based on Sydney prices and includes all the categories in the standard basket. A list of the 11 categories included in the standard basket is shown here.
What’s in a CPI basket?
The 11 categories included in each of the All Groups Indexes are:
* Health * Transport * Communication * Recreation and culture * Education * Insurance and financial services * Food and non-alcoholic beverages * Alcohol and tobacco * Clothing and footwear * Housing * Furnishings, household equipment and services
So, how does this affect my pension?
Each year in October the amount of your pension is adjusted to reflect the percentage movement in CPI from one June quarter to the next June quarter. This adjustment most often results in an increase in your State Super pension, but your pension can be decreased if the CPI is a negative amount.
You may recall that last year no adjustment was made to State Super pensions. This was because the CPI from 1 July 2019 to 30 June 2020 (All Groups Sydney) was -1.0%. This would have resulted in a reduction to State Super pensions, however, legislation was enacted to protect members by ensuring that pensions are only reduced when a negative CPI rate is -1.1% or greater. This meant that State Super pensions were not reduced last year by the negative CPI rate.
Scheme legislation requires State Super to calculate an adjustment rate based on the CPI percentage change from 30 June in the year that pensions were last adjusted to 30 June of the current year. As there was no adjustment last year, the last adjustment point was 30 June 2019. The movement in the CPI from 30 June 2019 to 30 June 2021 was 3.0%. The adjustment rate for State Super pensions is therefore 3.0% for this year.
State Super pensions will be adjusted from the first pension payday in October 2021, which is on Thursday 7 October this year. Pensions commencing during the first three quarters in the financial year receive a partial CPI adjustment, while no adjustment is made to pensions commencing in the final quarter.
2020 - 2021 CPI highlights:
Australia recorded an annual rise of 3.8%
Sydney recorded an annual rise of 4.1%
Sydney recorded a March-June quarter rise of 0.8% including:
- Automotive fuel +7.1%
- New dwelling purchase by owner occupiers +1.5%
- Restaurant meals (-2.3% ) and Takeaway fast foods (-2.5% ) both fell due to the NSW Government’s “Dine and Discover” vouchers, which reduces out-of-pocket costs
- Rents (-0.6%) fell due to weak demand reflected in high vacancy rates, particularly in attached dwellings
- Fruit and vegetables rose (+6.3%) due to a shortage of pickers, extreme rainfall on the east coast of Australia and Cyclone Niran affecting banana crop yields
Source: Australian Bureau of Statistics