Can the ACFI rate increase when consumer price index (CPI) is negative?

A Consumer Price Index (CPI) measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households.

The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically.  

At Mirus Australia we have typically looked to the Consumer Price Index for an indication of changes to be applied to subsidies and charges with relative accuracy. 

First, let’s look at a bit of history and some legislation to explain what we mean . . .

ACFI rates were once indexed by COPE which stands for Commonwealth Own Purpose Expenditure and many clients still refer to rate changes as such.

COPE was replaced with COPO (Outlays), which was (annual CPI % x 0.25) + (annual Safety Net Adjustment % x 0.75).  Safety Net Adjustment is essentially a change to minimum wage which moves about the same as CPI.  

Social Service Bill normalised many of the various allowances, pensions and support schemes and residential aged care subsidies on the pension indexation arrangements. 

This arrangement is indexed according to the Pensioner and Beneficiary Living Cost Index, which is a by-product of CPI. 

So, how can the by-product of CPI, Pensioner and Beneficiary Living Cost Index, be so different to CPI?  The main contributors to negative CPI were major declines in the price of fuel and major losses in holiday travel and accommodation expenditure. in Australia.

Neither of these factors are given as much weight  in  Pensioner and Beneficiary households as the cost of food and healthcare, both of which rose.  The main contributing factor was the rise in hospital and pharmaceutical costs resulting from fewer consumers qualifying for subsidies. 

And that is how there can be an ACFI rate increase when Consumer Price Index (CPI) is negative!

Want to find out more? Please get in touch

Ty Fisher is a business revenue and management expert at Mirus Australia who understands how to turn data into actionable insights for people + technology with the goal of #makingagedcarebetter