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Appendix 1: Brief history of household-group inflation measurement in New Zealand

Long-considered question

Consideration of household-group inflation is as old as consumer price measurement itself. It is closely related to questions about the purpose and construction of the headline measure of consumer price change. Bentley (2014) describes the evolution of CPI use in New Zealand, the implications for the reference population, coverage of goods and services, and the availability of household inflation measures for specific groups of households.

Over the 100-year history of the CPI , the index has evolved from being a necessities index (initially limited to food and house rent) for wage determinations by the Arbitration Court, through being a wider measure of household inflation, to its present-day focus as a macroeconomic indicator for monetary policy targeting.

In 1948, an advisory committee for revising the CPI from 1949 recommended widening the scope so the index was no longer restricted to necessities. In reality, it took until 1955 for there to be sufficiently liberal thinking to include private motoring and beer in the CPI basket of goods and services, and a further 20 years for wine and spirits to be included. Both the 1978 and 1985 CPI advisory committees discussed having a special-purpose price index limited to ‘basics’ or ‘necessities’, but they rejected the notion – due to the practical difficulties of classifying items as either necessities or luxuries.

Successive reviews of the CPI in the mid-20th century considered the variation in expenditure patterns between New Zealand households was likely to be less than in some other countries. This view, combined with the lack of a comprehensive household budget survey, meant no formal attempts were made to construct group-specific indexes until 1975.

Data availability

Since the first modern Household Economic Survey in 1973/74 (then the Household Survey) constructing special indexes for particular household groups has been technically feasible. We published a beneficiaries price index in 1975, and Jackson (1978) considered indexes for several household groupings, including income, age, occupation, and family type. Jackson found the clearest pattern of differential rates of inflation was for households grouped by ‘income of head of household’. Expenditure weights for the beneficiaries price index were noticeably different from those used in the CPI for food and rent. Despite this, the 1978 and 1985 CPI advisory committees concluded that movements in the beneficiaries price index over its one-year life-span were not significantly different from those of the CPI. The index was discontinued in 1976.

A longer-lived household-group price index was the superannuitants price index, published in the mid–late 1990s and sorting superannuitants by home-ownership status. A faster rate of inflation was found for renters than owner-occupiers, the latter more closely tracking the CPI. This index was discontinued in 1999 when we removed interest payments from the CPI (making the CPI more suitable as an inflation target and less amenable to household-group-specific measures).

Customer needs

In the recent past, CPI advisory committees have recommended special consumer price indexes for particular groups of households. The 1997 committee stated that the extent to which the CPI represents the expenditure patterns of different socio-economic groups should be considered. The 2004 and 2013 committees explicitly recommended producing supplementary indexes for different population groups, such as government transfer recipients (including superannuitants), income groups, wage and salary earners, and (by the 2013 committee) ethnic groups.

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