COVID-19 will mean the December quarter Consumer Price Index to be released on the last Wednesday in January, will have a different look to the one released in late October for the September quarter.
The cost of overseas travel has been slashed in the weights used in the CPI to measure cost changes from quarter to quarter – that is a big message that the Australian Bureau of Statistics sees little or no chance of international outbound travel from Australia re-starting next year.
In fact the cost cut is substantial – more than $18 billion a year based on spending in 2019 and over $19 billion prospectively in 2021, according to the Australian Bureau of Statistics.
For investors it’s a negative message for the likes of travel groups like Flight Centre, Qantas, HelloWorld, Webjet, Corporate Travel and several smaller operators because the $18 to $19 billion is lost value for the offshore travel and tourism sectors.
It is however a pot of gold for local retailers, travel and tourism operators and other sectors (if COVID is controlled).
It could also mean a more benign outlook for inflation in 2021 (remember the CPI includes the rising cost of tobacco due to higher taxes and yet less than 15% of Australians smoke).
But some of those savings from not travelling overseas could be spent in housing (already suggestions that is happening), saved, or spent on new services or goods, thereby adding to price pressures there.
The ABS revealed the changes to the weightings for the CPI from the impact of COVID closing our international borders, would see a dramatic drop in the costs associated with international travel, meaning Australians are and will be spending less on global holidays for the foreseeable future.
“In 2020, the largest change in weight was for international holiday travel, following the closure of Australia’s borders. For the 2019 re-weight, international holiday travel had a weight of 3.38%, which represented about $18.7 billion in spending by Australian households. Following the 2020 re-weight, the updated weight is 0.08%, representing about $0.4 billion of spending.
The ABS said the re-weighting of the CPI meant “the recreation and culture group recorded a significant fall of 4.08 percentage points (pp) to 8.73%, dropping from the third to sixth largest expenditure group in the CPI. The main contributor to this fall was international holiday travel, falling 3.30pp to 0.08%.”
The ABS said that if data on consumer spending used to calculate the weightings was used from the 2018-19 base the value in 2021 would have been $19.8 billion and its CPI weight 3.43%.
“With Australia’s borders remaining closed, this would have led to international travel having too high a weight in the CPI and the CPI basket being unrepresentative of spending by Australian households,” the ABS pointed out.
The ABS said in Wednesday’s release that it has annually re-weighted the CPI since 2018, predominantly using Household Final Consumption Expenditure (HFCE) data, which is lagged by 18 months. That’s why the 2018-19 data, if used for overseas travel for 2021, would have been too high.
