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In australia, the most important indicators of underlying inflation are the trimmed mean and the weighted median (see box We took a closer look at some of the key questions you may have about measuring inflation and calculating the change in inflation as well as all you need for a comprehensive understanding of inflation in australia. Calculating the trimmed mean and the weighted median).
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In australia, the trimmed mean is calculated as the weighted mean of the central 70 percent of the quarterly price change distribution of all cpi components, with the annual rates based on compounded quarterly calculations. Firstly, the seasonally adjusted quarterly percentage changes for each of the 87 cpi expenditure classes (ecs) are calculated and ranked from lowest to highest. Reserve bank of australia (rba) trimmed mean consumer price index (cpi) y/y measures a weighted average percentage change in prices for goods and services in the reported quarter compared to the same quarter of the previous year.
A trimmed mean is an averaging method that excludes a small percentage of the highest and lowest values
When applied to the core cpi, it removes extreme price changes to provide a more accurate reflection of overall price trends. In australia, the primary method of measuring inflation is the consumer price index (cpi) However, the country also uses the trimmed mean measure (tmm) as a secondary method The tmm is an alternative approach to measuring underlying inflation, sometimes referred to as core inflation.
There are three steps involved in calculating the trimmed mean
