What’s Actually in the Inflation Basket?

Economics Explained | May 2026 | 5 min read

Every time the Reserve Bank meets to decide whether to move interest rates, one number sits at the heart of the conversation: the Consumer Price Index, or CPI. You’ve probably heard it described as a measure of inflation, but what does that actually mean, and why does it sometimes feel like the official figure has nothing to do with what you’re spending at the supermarket?

The answer lies in understanding exactly what goes into the basket, and, just as importantly, what doesn’t.

The RBA doesn’t calculate CPI – the ABS does

This surprises many people. The Reserve Bank of Australia doesn’t produce the CPI figure itself. That job belongs to the Australian Bureau of Statistics (ABS), Australia’s national statistics agency. The ABS collects and publishes the data, and the RBA uses it when setting monetary policy.

The ABS has been measuring the CPI since 1960, with data backcast all the way to 1948. It’s a mature, well-documented methodology and all of it is publicly available on their website.

From November 2025, Australia moved to a complete monthly CPI, replacing the old quarterly measure as the principal headline inflation figure. The ABS publishes it once a month.

What is “the basket”?

The simplest way to think about it: imagine a shopping trolley filled with everything a typical Australian household buys over the course of a year. The ABS tracks what that trolley costs each month. When the total goes up, that’s inflation.

The basket covers 87 individual categories (called expenditure classes) grouped into 11 major buckets. The ABS collects prices from retailers, supermarkets, websites, government authorities, energy providers, and real estate agents right across Australia’s eight capital cities.

The 11 Groups and Their 2025 Weights

– Housing – 21.39% (the single largest component)

– Food and Non-Alcoholic Beverages – 17.44%

– Recreation and Culture – 12.74%

– Transport – 11.45%

– Insurance and Financial Services – ~8%

– Health – ~7%

– Furnishings and Household Equipment – ~6.5%

– Education – ~4.5%

– Communication – ~3.5%

– Clothing and Footwear – ~3%

– Alcohol and Tobacco – ~4%

Source: ABS Annual Weight Update of the CPI, 2025. Percentages for Housing, Food, Recreation and Transport are exact 2025 figures; others are approximate.

Where do the weights come from?

The weight assigned to each category reflects how much of their income Australian households actually spend on it. If housing takes up a bigger slice of household budgets, it gets a bigger weight in the index, and therefore a bigger influence on the final number.

The primary data source is the Household Expenditure Survey (HES), a large-scale ABS survey of spending patterns across different household types in each capital city. In years between surveys, the ABS uses Household Final Consumption Expenditure (HFCE) data from the National Accounts, supplemented by supermarket scanner data for more detailed breakdowns.

Important caveat: The basket represents all Australian metropolitan households in aggregate — not the expenditure pattern of an ‘average household’ or of any particular household type. A retiree who owns their home outright and rarely drives will have a very different personal inflation experience to a young family renting in Sydney and commuting daily.

The basket gets updated every year

Up until 2017, the basket was only reviewed every five or six years. Since then, the ABS has updated the weights annually, a significant improvement that keeps the index more relevant as spending patterns shift.

For example, the weight for Tobacco has fallen in recent updates, reflecting continued declines in smoking rates. Meanwhile, housing has maintained its position as the single largest component, reflecting how central housing costs are to Australian household budgets.

What the RBA actually watches: the Trimmed Mean

Here’s something many clients don’t realise: the RBA’s 2–3% inflation target isn’t measured against the headline CPI. It’s assessed against what’s called the trimmed mean — a measure of underlying inflation.

Headline CPI includes everything in the basket, including volatile items like fruit, vegetables, and fuel. A cyclone can send lettuce prices soaring and spike the headline number in a single month, even if the broader economy is perfectly stable.

Trimmed mean strips out the top and bottom 15% of price movements each period, leaving the middle 70%. This gives a cleaner signal of where underlying inflation is trending, which is what the RBA uses to guide rate decisions.

So when the RBA cuts or raises rates, they’re primarily responding to trimmed mean data not the number you see in the news headlines. Both are published by the ABS.

Why your inflation feels different

The CPI is an average across all metropolitan households. If you’re a renter, your housing costs are rising much faster than a homeowner’s. If you’re retired and spend heavily on health and medication, your personal inflation rate may look quite different to someone in their 30s.

The ABS acknowledges this and publishes Selected Living Cost Indexes (SLCIs), which break down inflation by household type; including employee households, age pensioner households, and self-funded retiree households. Your actual cost-of-living increase may track more closely to one of these than to the headline figure.

Why this matters for your financial plan

Retirement projections: When we model your retirement income needs, we use an inflation assumption. Knowing that housing (21%) and food (17%) dominate the basket helps explain why retirees who own their home outright often face lower effective inflation than the headline suggests.

Interest rate decisions: Each time you see a rate decision from the RBA, the trimmed mean CPI is the number they’ve been watching most closely. Understanding this helps decode the RBA’s language around ‘getting inflation back to target.’

Government indexation: Age pension payments, some social security benefits, and certain HECS-HELP debt indexation are all tied to CPI movements. Knowing how it’s calculated helps demystify why these adjust the way they do.

The full methodology is publicly available and surprisingly readable. The links below are a good starting point.

Further Reading — Official Sources

– RBA Explainer: Inflation and its Measurement — The RBA’s plain-English guide to how inflation is calculated.

– ABS: Consumer Price Index, Australia — Latest Release — The most current CPI data, updated monthly.

– RBA Inflation Explorer — Interactive tool to track price changes for specific items over time.

– ABS: CPI Methodology — Full detail on how the ABS constructs and calculates the index.

Disclaimer: This article is general in nature and does not constitute financial advice. Individual circumstances vary. Please speak with a qualified financial adviser before making any financial decisions. A Statement of Advice will be provided where personal advice is given.