A note on tobacco product prices in the Australian CPI

Abstract

This paper analyses the continuation of tobacco product prices within the Consumer Price Index (CPI) compiled by the Australian Bureau of Statistics (ABS) in Australia. There are important areas concerning packet sizes, nicotine content and tar content that make the continued inclusion of such prices inconsistent between periods. This is also important when one considers the changing patterns of tobacco consumption and the need to incorporate such changes in any Australian CPI. The paper concludes with a recommendation that tobacco be removed from the CPI so that smokers whose income is linked to the CPI are not ‘cushioned’ from tobacco price rises which result from increased tobacco product taxation. Recent increases in the Australian CPI are used to illustrate how the cyclical nature of increased tobacco prices in the Australian CPI raise the excise tax rates and the continued inclusion of tobacco prices in the Australian CPI raises government benefits as a result. This means that the important sumptuary tax role of tobacco tax could be reduced.