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The role of housing costs in inflation has been cemented in the latest Bureau of Statistics consumer price index assessment. Photo: Erin Jonasson
HOUSING costs will figure larger in official inflation figures to come, after a reweighting of the consumer price index by the Australian Bureau of Statistics.
The bureau yesterday released its latest weighting of average expenditures of households, with the share of housing rising 2.7 percentage points to 22.3 per cent from a 19.53 weighting in the June-quarter 2005 weightings.
''This simply implies that should the cost of compatible new houses fall, then this is more deflationary for headline CPI given the bigger weight,'' said Annette Beacher of TD Securities.
Ms Beacher cautioned that CPI excludes existing house prices.
Interest rate uncertainty, along with worries about the health of the local and global economy, have cooled activity in the market.
In the ABS reweighting, new homes bought by owner-occupiers rose to a 8.67 per cent share of the basket of goods from 7.87 per cent in the last weighting using June-quarter 2005 prices. The change was due to ''both a price and volume increase'' in new home costs.
''The volume increase was driven by additional new residential construction driven by population growth in the capital cities and an increase in the average size and quality of new dwellings,'' the ABS said.
Rents will also figure larger in the CPI basket of goods, with their weights increasing to 6.71 per cent from 5.22 per cent in the last weighting in 2005.
While falls in the housing market could have a deflationary effect on CPI, said Moody's Economy.com analyst Katrina Ell, ''there could be a moderate upward bias given the greater weighting given to housing which is seeing rent and utility increases''. The share of utilities in the CPI weightings rose from 3.1 per cent in 2005 to 3.61 in the updated figures.
Insurance and financial services as a share of CPI dropped to 5.1 per cent, from 9.31 in June-quarter 2005 prices, as the ABS removed indirect charges related to deposits and loans.
The reweighting comes after the ABS revised the seasonally adjusted methodology on CPI last week, lowering its reading of core inflation to 0.6 per cent in the second quarter from the 0.9 per cent reported in July. The headline inflation figure was a reported 3.6 per cent in the June quarter.