CONSUMER PRICE INDEX INCREASES AND BODY CORPORATE BUDGETING EXPLAINED

Last year, you could buy a loaf of bread for $2.50. Today, it’s $2.80. Multiply that small change across groceries, fuel, rent, and electricity, and you start to feel the squeeze. Economists have a way of measuring this shift in the cost of living; it’s called the Consumer Price Index [CPI].

CPI is applied to a multitude of cost for a body corporate and as CPI rises, careful planning is required to ensure that any increased costs are met. In this article we will delve into what CPI is and how it affects owners levies they need to pay to sufficiently fund body corporate expenses.

What Is CPI?

Is a key economic indicator that measures the average change over time in the prices paid by households for a fixed “basket” of goods and services. This basket typically includes everyday items such as food, clothing, housing costs, transport, healthcare, and recreation.

In Australia, the CPI is compiled by the Australian Bureau of Statistics (ABS) and is released monthly.

Why Is It Important?

The CPI is widely used to:

• Measure inflation – It shows how quickly prices are rising or falling.
• Guide economic policy – The Reserve Bank of Australia (RBA) uses CPI trends to help set interest rates, aiming to keep inflation within its target range (2–3% over the medium term).
• Adjust payments and contracts – Wages, pensions, and agreements may be indexed to CPI to maintain purchasing power and keep pace with the cost of living.
• Inform business decisions – Companies use CPI data to forecast costs and set prices.

How Is It Calculated?

1. Selecting the basket – The ABS surveys household spending patterns to decide which goods and services to include.
2. Collecting prices – Prices are gathered from thousands of retail outlets, service providers, and online sources.
3. Weighting items – Each item is given a weight based on how much households typically spend on it.
4. Comparing over time – The current cost of the basket is compared to its cost in a base period, producing an index number.

For example, if the CPI rises from 100 to 103 over a year, it means the average price level has increased by 3%.

Limitations Of The CPI

While CPI is a valuable tool, it has some limitations:

• It reflects average household spending, which may not match individual experiences.
• It may not fully capture changes in product quality or the introduction of new goods.
• It focuses on consumer prices, not asset prices like housing or shares.

Applying This to a Body Corporate

A body corporate is required to maintain common property on behalf of owners, through an appointed committee.  Contracts that the body corporate enter into for preserving these shared assets and facilities can be for lifts, pool, gardening, cleaning, body corporate management, caretaking, letting, window cleaning etc, depending on the common property.

Generally speaking, most schemes will have contracts that range from 1 year up to 25 years under the Accommodation module and may contain clauses reflecting annual adjustments equivalent to the CPI at time of renewal. 

Ensuring the committee factor these price movements into the annual administration and  sinking fund budgeting is completed in conjunction with the body corporate manager and ensures that bill shock, or special levies are avoided through good planning of anticipated expenditure.

When appointing a contractor or approving quotes, assessment the value proposition should be a key consideration. Some of the following factors for maintenance and major works appointments should be contemplated:

• Are works are included and in line with the sinking fund forecast timing and projected cost?
• When selecting between contractors, are they licenced to perform the work, hold appropriate insurance, and have a registered entity?
• Is the scope of work clear and when comparing quotes, this has been addressed to ensure adequate comparison (not just based on price)?
• Is the quote valid until formal approved, which may take more than 30 days when a general meeting is required?
• Do you know what CPI increases are contained within the contract terms and understand when CPI increases are applied, monthly, quarterly, annually?

Conclusion

The Consumer Price Index is more than just a number; it’s a snapshot of how the cost-of-living changes over time. By tracking CPI, governments, businesses, and households can make informed decisions about spending, saving, and planning for the future.

A well-prepared budget protects the value of the property, avoids financial shocks, ensures compliance with legislative requirements to meet financial obligations and continues to build trust between the committee and lot owners.

Your body corporate manager is essential in guiding the volunteer committee through budgeting to safeguard the communities financial health and engage with owners through the process.

Article Contributed by Nicky Lonergan, CEO, Archers the Strata Professionals.