What is the Consumer Price Index (CPI)?
Inflation is an increase in the general level of prices of the goods and services that households buy. It is measured as the rate of change of those prices. Prices usually rise over time, but they can also fall — a situation called deflation.
The most widely watched measure of inflation is the Consumer Price Index (CPI). The CPI tracks the percentage change in the price of a fixed basket of goods and services consumed by Australian households, which makes it the headline number most people mean when they talk about the cost of living moving.
How the CPI is calculated
In Australia, the CPI is calculated by the Australian Bureau of Statistics (ABS) and published once each quarter. To build it, the ABS collects prices for thousands of individual items, grouped into 87 expenditure classes and 11 broader groups. Each quarter, the ABS measures how the price of each item has moved since the previous quarter, then aggregates those movements to produce the inflation rate for the whole basket.
Not every item carries the same influence. The ABS weights the basket according to how households actually spend their income, so an item that absorbs a larger share of household spending carries a larger weight in the index. The basket also shifts as spending patterns change — smartphones, for instance, were brought into the CPI to reflect consumers taking up advances in technology. Because the detailed spending data underpinning these weights is only refreshed roughly every five years, the basket is updated periodically rather than continuously.
Why the CPI matters for borrowers
The long-run picture is a gradual increase in the cost of goods and services, with the general expectation that wages and salaries rise broadly in step over time. For anyone holding or planning a mortgage, the CPI is more than a statistic. It is one of the key readings the Reserve Bank of Australia weighs when it sets the cash rate, which in turn feeds through to variable home loan rates and to the assessment rates lenders use to test serviceability.
That matters structurally, not just tactically. When inflation runs hot, rates and serviceability buffers tend to tighten, and borrowing capacity contracts even if your income has not changed. When it cools, the policy settings ease. The question is rarely "where is inflation heading" — no one controls that — but "how is the borrowing structured so it holds up across the rate cycle rather than only in today's conditions." That is the part worth getting right before you commit.
If you want to understand how the current rate environment shapes what you can borrow and how a loan should be structured around it, Book a strategy session and we will work through where you genuinely stand.
General information only — not personal financial product or credit advice. AeFin is an Australian Credit Representative (CR 464548) of Finsure (ACL 384704).