Statisticians helping arm the Reserve Bank to fight inflation

Measures of everything from retail turnover and job vacancies to wage growth, rents, forward orders and demand for households goods and services are being pored over in minute detail as central bank officials look for evidence that price pressures are easing.

As Reserve Bank governor Philip Lowe put it during his appearance before the House Economics Committee earlier this month: "We're not on a predetermined path with interest rates. We meet every month. And we're looking at all the pieces of the jigsaw puzzle every month to try to put them together, and if those pieces tell a different story then we'll respond."

Such urgent demand for timely and reliable economic data is nothing new for Australian Statistician David Gruen and his team at the Australian Bureau of Statistics (ABS) who faced similar pressures during the height of the COVID pandemic.

As understanding of the threat posed by the coronavirus escalated in early 2020, Dr Gruen and his team quickly realised timely information about the physical and economic impact of the infection would be vital for governments in using scarce health and financial resources to greatest effect.

"One of the things we did very quickly when COVID turned up was start running small business surveys and small household surveys to actually find out things," Dr Gruen said.

"The first one of those we we put in the field on March 16 and published the results on March 26, 2020. I don't think the ABS had ever done that before, from the first day of collection to the publication in 10 days."

Even before COVID was on the world's collective radar, the ABS had been in discussions with the Australian Taxation Office about how data from its Single Touch Payroll system could be used to give a timely insight into employment and income.

"When COVID arrived, both the tax office and ourselves realised that the benefit of doing this as fast as we possibly could was enormous. We got that data for the first time in early April of 2020 and our first publication was late April 2020. And we've been publishing it ever since," the statistician said.

Necessity being the mother of invention, it was during the pandemic the ABS developed ways to track vaccination rates and COVID deaths.

The agency integrated the Australian Immunisation Register with its Maps database to give Health Department officials an update, virtually in real-time, about rates of vaccine uptake and COVID mortality among different population groups and regions.

"That enabled the Health Department to quickly pivot to providing support to those areas that were in most need," Dr Gruen said.

Though people continue to catch and die from COVID, it has been displaced by inflation as the major threat to the country's prosperity, and so the focus of the ABS has shifted as well.

While the agency continues to publish some of the data series that began during the pandemic, others have been dropped as the priorities of government and the nation have shifted.

"Part of what I think our role is, is to respond to the circumstances and tailor our effort to be as as helpful as we can be," Dr Gruen said.

"When we saw that inflation was rising quite strongly, we thought if we could produce something that is close to what full monthly CPI [consumer price index], there would be enormous benefit in doing it at the moment because inflation is running hot."

While the quarterly CPI is still considered the most comprehensive measure of inflation, the monthly index produced by the ABS is viewed as a timely guide.

Such timeliness is particularly important given that the Reserve Bank board meets monthly and is currently trying to gauge how prices and demand are responding to nine consecutive interest rate hikes, with the prospect of more to come.

One of the biggest drivers of inflation has been housing costs, due not only to higher mortgage repayments from rising interest rates but also the escalation in rents.

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To better track the financial pressure on the third of the population in rental accommodation, the ABS has gained access to a database of 500,000 rents, a massive increase from the 4000 rents it had previously drawn upon.

RBA assistant governor Luci Ellis told the parliamentary committee that a central bank official has been placed with the ABS to develop the data source and gain deeper insights into developments in the rental market.

The Australian Bureau of Statistics is also in discussions with the government about its goal to measure national wellbeing.

Treasurer Jim Chalmers is aiming to release a Measuring What Matters Statement mid-year which will set out up to 25 indictors that will be tracked to try to capture living standards and social and environmental outcomes as well as economic developments.

Dr Gruen said the ABS was one of the first national statistical agencies to develop a comprehensive way to measure community wellbeing that went beyond standard economic measures, and its approach had helped inform the metric adopted by the Organisation for Economic Cooperation and Development.

"We have got experience in producing measures like that," the ABS head said. "Treasury is taking the running on what the government wants to do with wellbeing measures but we're very much in conversation with them and providing input about what things we could measure straightforwardly; what things would be more difficult to measure."

An important aspect of economic performance that is proving very difficult to measure is productivity.

National accounts data indicate in Australia, as in many other advanced economies, productivity has virtually stagnated. The 10 years to 2019-20 was the worst decade for productivity gains in 60 years, according to the Productivity Commission.

But there is a lively debate about whether current measures are capturing developments in productivity, particularly as so much of the nation's output is in services rather than goods.

Dr Gruen said that 40 years ago the biggest companies were General Motors and the like, using factories to produce well-defined products.

"Now the biggest companies are Apple, Google, and the capital that they're using is a bunch of relatively cheap laptops. They've got a bunch of smart people but the whole production process doesn't fit so neatly into standard economic models," he said.

The trend in economic activity is away from areas that are easier to measure, but Dr Gruen said it is not a challenge the ABS can shy away from.

"Being able to measure how a country is performing in terms of productivity has all sorts of implications for policy. So, a tough area, but there's a real national interest involved in that," he said.