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Price Index News: July 2015

1. Short stories

Comparing food at home with food away from home

Comparing food at home with food away from home looks at the history of how prices for restaurant meals and ready to eat food have been tracked in the CPI, and how their prices have changed compared to food bought to eat at home. 

Contribution of Māori employees through wages they are paid

As part of our review of the relative importance of industries and occupations in the labour cost index (LCI), we also estimated the contribution that Māori paid employees make across industries and occupations, based on the wages they receive.

The top two industries that are most important for Māori, based on the proportions of wages they are paid, are:

  • Education and training – many Māori are employed in Māori immersion schools such as te kōhanga reo for pre-school education, and te kura kaupapa Māori for primary education.
  • Health care and social assistance – many Māori are employed in providing health care and support services in homes and aged-care facilities.

Overall, $11 of every $100 of total wages paid by employers is paid to Māori employees. The top two industries in which the relative proportions of Māori, based on the wages they are paid, are highest are:

  • Forestry and logging – about $40 of every $100 is paid to Māori employees.
  • Fishing, aquaculture, and agriculture, forestry, and fishing support services – about $25 of every $100 is paid to Māori employees.

Our work involved using existing data sources – mainly 2013 Census data for the occupation distribution of Māori paid employees, and associated information from the Business Register, and LCI. Other data sources we used were:

See Tatauranga Umanga Māori 2015: Statistics on Māori authorities for further information on the industries and occupations that are important for Māori paid employees. 

What could you live without? Using the CPI basket to define the basics

What could you live without? explores how the household expenditure patterns we use to weight the CPI basket provide a window on society, and insight into consumer behaviour. Using our research into suitable weighting methods for the household living-costs price indexes (HLPIs) we find which goods and services are consumer ‘necessities’ and those that are ‘luxuries’.

2. Working with others

Sharing our experience with prices big data in Japan

Prices senior researcher Frances Krsinich visited Tokyo in May 2015 to share insights gained from our recent experience of implementing consumer electronics scanner data in the New Zealand consumers price index (CPI). She also discussed the latest results from our ongoing research programme into methodology for prices big data.

On 19 May, Frances was a member of the discussion panel for the Nikkei-Nowcast seminar, the Future of Scanner Data and Online Data for the Construction of Consumer Price Indexes, alongside hosts Tsutomu Watanabe and Chihiro Shimizu and other international experts Erwin Diewert, David Fenwick, and Alberto Cavallo.

The panellists all agreed that official statistics agencies will increasingly adopt scanner and online data in producing their CPIs. Methodology has progressed to the point where agencies can produce robust quality-adjusted price indexes from this data. New Zealand’s experience in developing a production process for scanner data in our CPI, and its associated challenges, was of particular interest.

The Ottawa Group, an international working group on price indices, met in Tokyo from 20 to 22 May, to discuss the following topics:

  • alternate data sources and index number formulas
  • compiling property price indexes
  • price statistics that meet multiple user needs
  • quality adjustment
  • pricing seasonal products.

A modification of the GEKS index when product turnover is high was presented by Claude Lamboray, of Statistics Luxembourg; a paper joint-authored with Frances Krsinich. This paper demonstrated the GEKS index is biased in the presence of high-turnover of products and suggests a modification that corrects this bias, offering a possible alternative method to regression-based approaches for big data with no information on the characteristics of products.

Frances also presented two sole-authored papers:

Price indexes from online data using the fixed-effects window-splice (FEWS) index discussed how the FEWS index can be used to produce quality-adjusted price indexes from online data. The paper also simulated the effect of lacking information on the numbers of products sold in the online data, using scanner data.

Implementation of consumer electronics scanner data in the New Zealand CPI presented our experience of implementing scanner data in production, focusing on the iterative approach we have taken to developing a processing system that incorporates a comprehensive range of analysis and monitoring processes.

The potential of big data to improve price measurement is currently a key topic for the Ottawa Group, with just under half the 35 papers relating to scanner data or online data. In contrast to earlier meetings, the focus is now shifting from problems to solutions. These include our paper giving an implementation case-study, and the Dutch proposal for a generalised framework for large-scale use of scanner data in the Dutch CPI, which incorporates much of our collaborative research with Statistics Netherlands.

See A framework for large-scale use of scanner data in the Dutch CPI for a PDF (42 pages) of the Dutch paper.

3. Virtual papers

New analytical seasonally adjusted CPI series

We are now providing analytical seasonally adjusted consumer price index (CPI) series. This will allow customers to get a better understanding of inflation without the influence of seasonal price change.

The new seasonally adjusted series are to provide analytical insight. The unadjusted CPI remains the official, headline measure. We will directly adjust down to the class level for both the food price index (FPI) and CPI.

The 2013 CPI Advisory Committee recommended that we add a analytical seasonally adjusted series.

See Analytical consumers price index seasonally adjusted series  for discussion of the choices we made, and why. New tables with the seasonally adjusted time series up to the March 2015 quarter (CPI) and May 2015 month (FPI), are also available.

Prices research and development presented in Wellington

This year’s New Zealand Association of Economists (NZAE) conference happened in Wellington from 1 to 3 July. Two Prices staff presented papers. Alan Bentley presented 'New measures of inflation for groups of households', and Frances Krsinich talked about 'Implementation of consumer electronics scanner data in the New Zealand CPI'.

Alan’s paper discussed our development of new measures of inflation for groups of households – beneficiaries, superannuitants, Māori, and income quintiles. Frances’s paper presented the methodology and practical issues associated with incorporating scanner data for consumer electronics into the CPI.

4. Nuts and bolts

PPI sources and methods document, and weight tables

As part of a recent review of the scope and purpose of the PPI we made several decisions, one of which was to produce updated sources and methods documentation – including tables of PPI commodity weights by industry. We published the updated Producers price index: concepts, sources, and methods with the March 2015 quarter business price indexes release.

See the producers price index weights page for the industry-by-commodity weights we published with the industry weights.

5. 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.

6. Development updates

New CPI initiatives for 2015

We have begun work on two new consumers price index (CPI) initiatives in 2015 and outline them here. These initiatives will help ensure we continue to meet our customers’ needs.

New indexes available in 2016

We will produce a suite of eight household living-costs price indexes (HLPIs) for the following household groups by early 2016:

  • beneficiaries
  • income groups (quintiles)
  • Māori 
  • superannuitants.

These HLPIs will provide greater insight into the inflation these household groups experience. We have begun development work to:

  • refine the weights used in the initial feasibility study (eg to determine how best to weight insurance payments)
  • confirm, or refine, the precise definitions for each household group
  • develop a suitable price measure for interest payments
  • calculate updated weights based on the 2012/13 Household Economic Survey
  • incorporate the HLPIs into our production systems.

We presented a working paper at the New Zealand Association of Economists conference 2015 that describes these issues in more detail.

See New measures of inflation for groups of households (PDF).

We will consult with our customers shortly to get your views.

Seasonal adjustment coming to analytical CPI

The second initiative is that we will publish seasonally adjusted analytical CPI series for the June 2015 quarter, to give our customers a better understanding of inflation without the influence of seasonal price change.

See Seasonal adjustment in the CPI  further up the page for more information.

Why we developed the initiatives

These two initiatives came from the recommendations the 2013 CPI Advisory Committee made. Decision on 2013 CPI Advisory Committee recommendations provides details about our decisions on the committee’s recommendations.

For more information on the HLPIs and seasonally adjusted CPI series contact:

Alan Bentley
Wellington 04 931 4600 or 0508 525 525
Email: info@stats.govt.nz

CPI rolling review 2015/16

Between our three-yearly updates of the CPI basket and weights, we undertake rolling reviews. We have begun work on the rolling review for 2015/16. This review will refresh the sample of field outlets and product specifications to ensure they continue to represent where consumers shop and what they buy.

We will also consider our mix of price-collection modes (physical visits, online price collection, and postal surveys) to ensure prices are collected efficiently and maintain relevance.

For more information on this CPI rolling review for 2015/16 contact:

Katrina Dewbery or Alan Bentley
Wellington 04 931 4600 or 0508 525 525
Email: info@stats.govt.nz

Annual update of producers price index weights

We update the producers price index (PPI) industry and commodity weights annually to help maintain the relevance of this index. The weights come from the supply and use tables (SUT) we produce each year as part of the New Zealand System of National Accounts. The 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). 

See New Zealand Standard Output Categories classification tables for details.

We introduced the latest weights in the PPI tables for the March 2015 quarter business price indexes release, based on the 2011/12 SUT. These weights were first used to weight price movements from the December 2014 quarter to the March 2015 quarter. We are also updating the lower-level commodity indexes and product samples. This work is part of our review of the business price indexes.

We use the PPIs as deflators in calculating gross domestic product, which is New Zealand’s official measure of economic growth. These deflators 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 so all parties have agreed procedures for adjusting originally contracted prices.

Reviewing the business price indexes

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

We survey 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.

At present, we are reviewing these industries:

  • fishing
  • meat and meat product manufacturing 
  • seafood processing 
  • dairy product manufacturing 
  • fruit, oil, cereal, and other food product manufacturing 
  • beverage product manufacturing 
  • telecommunication services 
  • Internet service providers and data processing services 
  • computer system design and related services 
  • building construction
  • heavy and civil engineering construction
  • construction services
  • mining.

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

Implemented in the March 2013 quarter:

  • printing and publishing.

Implemented in the June 2013 quarter:

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

Implemented in the March 2014 quarter:

  • farm expenses price index.

Implemented in the June 2014 quarter:

  • forestry and logging
  • aquaculture
  • hunting and trapping
  • agriculture, forestry, and fishing support services
  • tobacco product manufacturing
  • 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.

Implemented in the September 2014 quarter:

  • agriculture.

All industries we are currently reviewing will have lower-level PPI commodity weights and updated product samples implemented after the June 2015 quarter. We will publish an updated list of these industries in Price Index News.

For more information about the rolling BPI review, please contact:

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

Labour cost index review in final phase

We are now in the final phase of the labour cost index (LCI) review.

The review is undertaken to update the weights of the LCI so that these reflect the changes in the industry and occupation structures of the labour market.

The LCI measures changes in wage rates and non-wage labour costs (eg the costs for annual leave and superannuation).

See Labour Market Statistics and Labour Cost Index (All Labour Costs) information releases for more information.

We updated the LCI weights for salary and wage rates, and implemented them in Labour Cost Index (Salary and Wage Rates): September 2014 quarter. The main data sources we used were the 2013 Census, the Business Register of New Zealand businesses, the Labour Cost Survey, the Quarterly Employment Survey, and linked employer-employee data.

See Reweighting the labour cost index (salary and wage rates)  for details about the methods we used to compile the new weights.

In our final phase of the review, we are reweighting the non-wage labour costs component of the index. We are also consulting LCI customers and stakeholders so we can better understand the value they obtain from the non-wage component of the LCI.

Price indexes quickly lose relevance if not reviewed. This would undermine the fit-for-purpose quality not only of the indexes, but also of the wider macroeconomic statistics system. This is because we use the LCI as a deflator in calculating gross domestic product. The business community also uses the LCI 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 LCI 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.

For further information about the review, contact:

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

7. Release dates

Price index release calendar for the next three months

July 2015

Mon 13 July              Food Price Index: June 2015

Thu 16 July        M    Consumers Price Index: June 2015 quarter

August 2015

Wed 5 Aug                Labour Market Statistics: June 2015 quarter

Thu 13 Aug               Food Price Index: July 2015

Wed 19 Aug      M    Business Price Indexes: June 2015 quarter

September 2015

Tue 1 Sep          M    Overseas Trade Indexes (Prices and Volumes): June 2015 quarter (provisional)

Fri 11 Sep                 Food Price Index: August 2015

M= Media conference

This issue of Price Index News was released on Friday, 10 July 2015.

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