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Price Index News: July 2014

1. Short stories

Heating in the consumers price index

Heating in the consumers price index looks at how we have kept our homes warm over the past 100 years, as shown by the history of heating items in the CPI.

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2. Working with others

Talking about price measurement using big data

Statistics NZ participated in the recent UNECE/ILO meeting of the group of experts on consumer price indexes, held in Geneva 26–28 May.  The meeting is held every two years at the United Nations in Geneva, to provide a forum for discussion and presentation on topics relevant to consumer price indexes.

The first day of the meeting consisted of eight workshops on the following topics:

  • elementary price indexes
  • measurement of core inflation
  • quality management
  • scanner data
  • higher-level index formulae
  • quality adjustment
  • seasonal products
  • the Price Index Processor Software (PIPS).

The workshops were run in four parallel streams. Statistics NZ's senior researcher Frances Krsinich attended the scanner data workshop (for which we lodged a background discussion paper) and the quality-adjustment workshop where she presented on the use of hedonic methods for quality adjustment in Statistics NZ.

The second and third days of the meeting consisted of plenary sessions on many topics including:

  • a session discussing a possible update of the 2004 CPI Manual
  • treatment of seasonal items
  • scanner data – both for price measurement, and to help inform current CPI practice
  • the potential use of online data for price measurement of clothing in the Dutch CPI
  • sample selection bias in clothing and footwear in Sweden
  • difficult-to-measure products and services, for example mobile phone services and commercial property
  • quality management of the South African CPI
  • benchmarking across different statistical agencies’ CPIs.

Statistics NZ presented a paper on a new methodology we have developed called the fixed-effects window-splice (FEWS) index. This can be used to produce quality-adjusted price indexes for 'big data' such as scanner data or online data, where there is longitudinal price information at a detailed product level.

Read the paper FEWS index: Fixed effects with a window splice: Non-revisable quality-adjusted price indexes with no characteristic information.

Frances then presented a paper on the use of the FEWS index for producing price indexes from online data, at the New Zealand Association Economists Conference held in Auckland 2–4 July.

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3. On the horizon

Winter seasonal goods

Consumers buy some goods in the CPI basket mainly during winter. Therefore, we conduct the CPI winter seasonal survey once a year, in the June quarter.

Winter seasonal goods in the basket include winter clothing and footwear, winter-weight duvets, and electric fan heaters. We price these goods in June quarters only, because they have both a limited supply and demand in other quarters. As a result, prices of winter seasonal goods show change only in June quarters.

More information on discounting

From the June quarter, further information will be included in supplementary table 5 of the CPI release. This table shows the percentage of prices collected quarterly from retail outlets that were discounted in the quarter. From the June quarter, this table will also show the quarterly average percentage change for those prices that were discounted in the current quarter.

Celebrating 100 years of CPI

The consumers price index (CPI) turns 100 this year and we'll be celebrating this when the June 2014 quarter CPI is released. Records of retail prices exist from as early as 1891, but the first official all-groups CPI figure is for the June 1914 quarter.

We will include interactive visualisations of how the CPI basket and prices have changed over the past century, and provide links to recently digitised historical documents and data.

On 23 July an Official Statistics System seminar will look at how the index has remained relevant. The seminar will also discuss how the 100-year time series provides an enduring resource that tells stories about the progress of New Zealand's economy and society.

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4. Development updates

New CPI weights and basket for September 2014 quarter 

In June 2013 we began a review of the consumers price index (CPI). We review the CPI and food price index (FPI) every three years to help ensure that the CPI basket of goods and services continues to reflect household spending patterns. The review is due to be implemented in the September 2014 quarter CPI.

The CPI is made up of a representative ‘basket’ of goods and services purchased by New Zealand households. As part of the review, the relative importance of these goods and services will be updated, using information from the 2012/13 Household Economic Survey (HES) and other sources. We will also reselect the goods and services that are included in the basket.

Some of the 2013 CPI Advisory Committee’s recommendations will also be implemented in the review.

We will publish the new CPI weights and basket on 8 October 2014. The new weights and basket will be implemented in the September 2014 quarter CPI on 23 October 2014.

We will publish the new FPI weights and basket on 27 August 2014, alongside the July 2014 FPI. The July 2014 FPI will be the first release with the new weights and basket.

The previous CPI review used information from the 2009/10 HES, and was implemented when the September 2011 quarter CPI was published in October 2011. Before the 2011 review, New Zealand had entered a six-quarter recession that began in the March 2008 quarter. This recession influenced household spending, and was reflected in the reviewed CPI.

Changes to the CPI basket in the 2011 review showed a continuing shift in household spending towards the latest technology – goods such as tablets, external computer hard drives, e-books, and digital movie downloads were added to the CPI basket.

Dictionaries and envelopes were two of the goods removed from the basket.

For more information on the 2014 CPI review please contact:

Nick Martelli
Wellington 04 931 4600 or 0508 525 525
Email: info@stats.govt.nz

Labour cost index review

We are reviewing the labour cost index (LCI) weights. The LCI measures changes in wage rates and non-wage labour costs (for example, the costs for annual leave and superannuation).

Our recent work on the review has focused on:

  • refreshing the sample of jobs to reflect growth and decline in occupations and industries
  • analysing 2013 Census and associated information to make sure it’s fit to use to reweight the LCI.

The first releases of the reweighted indexes will be for the September 2014 (salary and wage rates) and the June 2015 (non-wage labour costs) quarters.

The review will help keep the LCI relevant – to ensure it reflects the current industry and occupation structures of the labour market.

Price indexes quickly lose relevance if not reviewed, which would undermine the fit-for-purpose quality not only of the indexes, but also of the wider macro-economic statistics system. The LCI is used as a deflator in the calculation of gross domestic product. It is also used by the business community in wage negotiations and contract indexation clauses. Government agencies such as the Reserve Bank and The Treasury use the LCI to monitor and forecast wage inflation.

The 2013 Census is a key data source for the review. Other important data sources include Statistics NZ's Business Register of New Zealand businesses, the Labour Cost Survey, the Quarterly Employment Survey, and linked employer-employee data.

The review is based on the existing industry and occupation groups – the New Zealand Standard Industrial Output Categories and the Australian and New Zealand Standard Classification of Occupations, respectively. As part of the review we’re refreshing the sample of jobs we track, adding about 270 positions and removing about 190, to reflect relative growth and decline in occupations and industries. There are over 6,000 positions in the sample.

For further information about the LCI review, please contact:

Ludeth Mariposa
Wellington 04 931 4600 or 0508 525 525
Email: info@stats.govt.nz

Annual update of producers price index weights

The producers price indexes (PPIs) are used as deflators in calculating gross domestic product (GDP). These deflators are used to remove the effect of price change so that change in the volume of goods and services produced in the economy can be measured.

The PPIs are also used as an inflation measure and in contract indexation; for example, to reflect changes in prices during the life of a commercial project.

We update the PPI industry and commodity weights annually to help maintain the relevance of this index. The weights come from the supply and use tables (SUT) produced annually as part of the New Zealand System of National Accounts. These updates reflect changes in economy-wide income and expenditure, in particular the mix of products and the mix of industries. We re-weight the industries at the New Zealand Standard Industry Output Categories level 4 and above (there are 118 level 4 industries).

We introduced the latest weights in the March 2014 quarter PPI, based on 2010/11 SUT. These were first used to weight price movements from the December 2013 quarter to the March 2014 quarter.

We are also updating the lower-level commodity indexes and product samples. This work is part of reviewing the business price indexes.

Reviewing the business price indexes

We are continuing our rolling review of the business price indexes – the producers price index (PPI), the farm expenses price index (FEPI), and the capital goods price index (CGPI). The review has two objectives: to maintain the relevance of these indexes and to collect commodity data for use in the national accounts.

We are surveying a sample of economically significant enterprises operating in New Zealand, to collect information on their supply and use of goods and services (commodities). We use information from the commodity data collection to balance the production and expenditure estimates of gross domestic product (GDP), within an input-output framework. Doing this requires us to compile tables that detail the supply and use of commodities, by industry.

We also use this commodity information (by industry) to update lower-level weights for the business price indexes. These are used as deflators in producing a chain-volume measure of GDP.

We carried out the previous PPI redevelopment from 2004 to 2010. The current rolling review is the first to use the Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06). As part of the review, we prioritised the ANZSIC06 industries and are reviewing them on eight-year cycles for most industries, and on four or 12-year cycles for those remaining.

Currently, we are reviewing these industries:

  • agriculture
  • forestry and logging
  • aquaculture and fishing 
  • hunting and trapping
  • agriculture, forestry, and fishing support services
  • meat and meat product manufacturing
  • seafood processing
  • dairy product manufacturing
  • fruit, oil, cereal, and other food product manufacturing
  • petroleum and coal product manufacturing
  • basic chemical and basic polymer manufacturing
  • fertiliser and pesticide manufacturing
  • pharmaceutical, cleaning, and other chemical manufacturing
  • beverage and tobacco product manufacturing
  • transport equipment manufacturing
  • electronic and electrical equipment manufacturing
  • machinery manufacturing
  • telecommunication services
  • Internet service providers and data processing services
  • computer system design and related services
  • rail, water, air, scenic and sightseeing transport.

We have completed reviews and also implemented lower-level PPI commodity weights and updated product samples for the following industries:

  • printing and publishing
  • primary metal and metal product manufacturing
  • fabricated metal product manufacturing
  • electricity, gas, and water.

We have also completed and implemented our review of the farm expenses price index (FEPI). The FEPI review was implemented in the March 2014 quarter, and the weights and classification are now available.

We will be implementing lower-level PPI commodity weights and updated product samples for the following industries in the June 2014 quarter:

  • agriculture
  • forestry and logging
  • aquaculture and fishing 
  • hunting and trapping
  • agriculture, forestry, and fishing support services
  • petroleum and coal product manufacturing
  • basic chemical and basic polymer manufacturing
  • fertiliser and pesticide manufacturing
  • pharmaceutical, cleaning, and other chemical manufacturing
  • transport equipment manufacturing
  • electronic and electrical equipment manufacturing
  • machinery manufacturing
  • rail, water, air, scenic and sightseeing transport.

All other industries to have lower-level PPI commodity weights and updated product samples will be after the June 2014 quarter. We will publish an updated list of these industries in Price Index News.

For more information about the rolling business price index review, please contact:

James Griffin
Wellington 04 931 4600 or 0508 525 525
Email: info@stats.govt.nz

Producers price index review of scope and purpose

We are reviewing the scope and purpose of the producers price index (PPI).

The PPI is a key economic indicator in most countries, including New Zealand. PPIs are constructed as either output indexes, measuring change in the prices that producers receive for their outputs; or input indexes, measuring change in the prices that producers pay for their inputs, excluding labour and capital.

The PPIs we produce are used as deflators in calculating gross domestic product (GDP). These deflators are used to remove the effect of price change so we can measure change in the volume of goods and services produced in the economy. The PPIs are also used as an inflation measure and in contract indexation; for example to reflect changes in prices during the life of a commercial project.

We have produced our PPIs in their current form for the past 30 years. Over this time the indexes have been re-weighted and re-referenced several times. However, the underlying conceptual basis and coverage have remained largely unchanged.

In our Review of scope and purpose of the PPI we consulted PPI users and are currently considering the feedback we received.

Key issues covered in the review include:

  • principal purpose of the PPI
  • weighting and pricing basis used
  • transactions that are in the PPI’s scope
  • industry and commodity detail and frequency
  • index formula
  • dissemination options.

We will have an update in Price Index News about the outcomes of the consultation, and any changes we will be making to the PPI.

For more information about the producers price index review of scope and purpose, please contact:

James Griffin
Wellington 04 931 4600 or 0508 525 525
Email: info@stats.govt.nz

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5. Release dates

Price index release calendar for the next three months

July 2014

Fri     11 Jul            Food Price Index: June 2014
Wed  16 Jul     M   Consumers Price Index: June 2014 quarter

August 2014

Wed    6 Aug   M   Labour Cost Index (Salary and Wage Rates): June 2014 quarter
Tue   19 Aug   M   Producers Price Index: June 2014 quarter
Tue   19 Aug   M   Capital Goods Price Index: June 2014 quarter
Tue   19 Aug         Farm Expenses Price Index: June 2014 quarter – tables
Wed  27 Aug         Food Price Index: July 2014

September 2014

Mon     1 Sep   M  Overseas Trade Indexes (Prices): June 2014 quarter (provisional)
Mon     1 Sep   M  Overseas Trade Indexes (Volumes): June 2014 quarter (provisional)
Fri      12 Sep        Food Price Index: August 2014

M= Media conference

This issue of Price Index News was released on Wednesday 9 July 2014.

ISSN 2350-3092

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