CPI Indexation and Damages: How Inflation Affects Your Compensation in NSW

DB Forensic
7 days ago
3 min read

Forensic accountant reviewing Consumer Price Index percentage change data for Sydney and Australia when preparing an indexed damages calculation for a personal injury matter

Inflation is something most people are conscious of in everyday life. The price of groceries, rent, and services rises over time, and what a dollar buys today is worth less than what it bought a decade ago.

In personal injury and compensation matters, inflation plays an important but sometimes overlooked role. It affects how past losses are measured, how statutory amounts are updated, and how future losses are projected.

Getting indexation right in a damages assessment is not a minor detail. In long-running matters or claims with significant past loss periods, the effect of inflation on the final figures can be substantial.

The Consumer Price Index in NSW

The Australian Bureau of Statistics publishes Consumer Price Index data for capital cities and for Australia as a whole. The CPI measures the change in the price of a basket of goods and services over time.

In NSW, the relevant series is the Sydney CPI. In recent years, CPI movements have been:

Year ended 30 June 2020: minus 1.0% for Sydney; minus 0.3% nationally
Year ended 30 June 2021: 4.1% for Sydney; 3.8% nationally
Year ended 30 June 2022: 5.3% for Sydney; 6.1% nationally
Year ended 30 June 2023: 6.6% for Sydney; 6.0% nationally
Year ended 30 June 2024: 3.8% for Sydney; 3.8% nationally
Year ended 30 June 2025: 1.9% for Sydney; 2.1% nationally

These movements reflect the inflationary period that followed the pandemic and the subsequent easing of price pressures in 2024 and 2025.

How CPI Is Used in Past Loss Assessments

In some compensation calculations, past losses need to be expressed in today's dollar terms. This is done by applying the CPI movement over the relevant period to bring an historical figure forward to the present.

For example, if a plaintiff's earnings need to be compared to a benchmark figure from several years ago, applying the CPI over the intervening period allows both figures to be expressed in comparable terms.

This is also relevant when reconstructing what a plaintiff would have earned had they not been injured, particularly where actual historical earnings data is limited and industry benchmarks from earlier years are being updated to current values.

Indexation of Statutory Amounts

Many of the statutory benefit amounts in NSW workers compensation and motor accidents legislation are indexed annually or six-monthly to reflect movements in average weekly earnings rather than CPI.

Average weekly earnings growth and CPI do not move in exactly the same way. Average weekly earnings tend to grow faster than CPI over the long term, reflecting real wage growth as well as inflation.

This distinction is important when assessing how statutory caps and benefits have changed over time. Using CPI when the applicable index is average weekly earnings will produce a different and usually incorrect result.

CPI and Future Loss Projections

For future loss calculations, the forensic accountant must make an assumption about how costs and earnings will grow over time.

In practice, the approach most commonly used is to prepare the future loss calculation in real terms, that is, excluding inflation, and then apply a real discount rate. The effect is that the calculation implicitly assumes that future wage growth or care cost increases keep pace with inflation, and the discount rate reflects the real return above inflation.

An alternative approach is to express all future figures in nominal terms, including an explicit inflation assumption, and apply a nominal discount rate. Both approaches, when applied correctly, should produce the same present value.

Understanding which approach an expert has used is important when reviewing a report.

Where Errors Arise

Common errors involving CPI or indexation in damages reports include:

Applying CPI when the relevant index is average weekly earnings
Using CPI to update statutory figures that are indexed by a different mechanism
Mixing real and nominal approaches within the same calculation
Applying the wrong year's CPI data to a past loss period

Any of these errors can produce a damages figure that is either overstated or understated.

How DB Forensic Handles Indexation

At DB Forensic, we apply the correct index to each relevant component of a damages assessment. We clearly identify whether average weekly earnings, CPI, or another mechanism is being used to index or project any particular figure, and we explain the basis for that choice in the report.