Question 3 - (Total: 65 Marks)

1. Consider the two tables below.

Annual Growth (%) in CPI and CPI Groups

March 2022 to March 2023- Australia (Weighted average of eight capital cities)

All groups CPI 7.0% Health	5.3%
Food and non-alcoholic beverages 8.0% Transport	4.3%
Alcohol and tobacco 4.4% Communication	1.2%
Clothing and footwear 3.2% Recreation and Culture	8.6%
Housing 9.8% Education	5.4%
Furnishings, household equipment and services 6.7% Insurance and financial services Source: ABS (2023)Consumer Price Index, Australia- March 2023, Tables 3 & 4 Annual Growth (%) in CPI and CPI Groups March 2023 to March 2024 - Australia (Weighted average of eight capital cities)	6.5%
All groups CPI 3.6% Health	4.1%
Food and non-alcoholic beverages 3.8% Transport	3.6%
Alcohol and tobacco 6.3% Communication	1.8%
Clothing and footwear 0.4% Recreation and Culture	0.2%
Housing 4.9% Education	5.2%
Furnishings, household equipment and services 0.2% Insurance and financial services	8.2%

Source: ABS (2024)Consumer Price Index, Australia- March 2024, Tables 3 & 4

1. Which goods (or CPI groups) rose faster (above 6%) than the All Groups CPI from March 2022 to March 2023? (4 marks)

(ii) How did the price of the same group of items fare between March 2023 and March 24? What could explain the changes in the prices of these items, their sustainment, or even their increase?

(5 marks)

(iii) Ignoring any potential substitution, quality and new product bias in the CPI, explain whether the CPI measures the cost of living and, if so, for whom? (5 marks)

(5 marks)

(iv) What three groups of items had the lowest price growth between March 2023 and March 24?

Provide an analysis of why these items had sluggish price growth.

(6 marks)

(v)The inflation rate, which was 7.0% from March 2022 to March 2023, is now 3.6% between March 2023 and March 24. Assuming households and businesses expected inflation to persist at 7% in 2024 while the actual inflation fell below 4%. Explain who is likely to be most negatively affected by this unexpected change and who may benefit from it in relation to income, assets, and debts. (8 marks)

(8 marks)