The pricing reference base is the period of time when all index numbers have the value of 100. The pricing reference base does not change frequently. The current index was last reset in September 1990 when the CPI used a pricing reference base of 1989-90 = 100.0. The ABS announced last week:
From the September quarter 2012, all index numbers will be calculated on a new index reference period of 2011-12. This will result in the index numbers for each index series being reset to 100.0 for the financial year 2011-12. Period-to-period percentage changes may differ slightly to those previously published due to rounding and the re-referencing. These differences do not constitute a revision.
The conversion of the index series from one pricing base to another involves calculating a conversion factor, which is then used to adjust calculations and reflect correct CPI increases by multiplying appropriate old base number to derive the new base CPI. For example:
- Index number for June 2012 (on base 1989-90 = 100.0) is 180.4
- Index number for June 2012 (on base 2011-12 = 100.0) is 100.0
- As a result conversion factor is 100.0/180.4 = 0.5543
The index re-set means that all future calculations will be undertaken on the basis of September 2012 and subsequent quarters will be set on a basis of the index number for June 2012 being 100.0 instead of 180.4. September quarter release by ABS will include historical CPI numbers under the new base period.
The new numbers will be used to calculate future p (capital uplift) and Kt (nominal value of the principal at the next interest payment date on which coupon payment is calculated) values for Inflation Linked Bonds (Australian Office of Financial Management formulae is available here).