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Price Index News: October 2011

1. Short stories

Bigger, safer, better: tracking retail and quality adjusted new car prices in the CPI

The retail prices of new cars are 'quality adjusted' before being included in the consumers price index (CPI). Bigger, safer, better: tracking retail and quality adjusted new car prices in the CPI explores the impact of these adjustments over the 10-year period from 2001 to 2011.

Trimmed mean inflation excluding GST rise

The article Trimmed mean inflation excluding GST rise discusses results from CPI analytical trend measures of price change, published by Statistics New Zealand, when the direct impact of the October 2010 GST rise is removed. These indexes were reprocessed with GST of 12.5 percent for goods and services subject to GST.

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2. Virtual papers

CPI review information paper

We have reselected and reweighted the CPI basket of representative goods and services, to ensure it continues to reflect household spending patterns.

As part of the review items added include tablet computers, external computer hard drives, e-books, and flatbread. Services added include alarm monitoring and delivery charges. Goods removed from the basket include unflued gas heaters, dictionaries, and envelopes.

The main source of information used for the review was the Household Economic Survey – a survey of 3,100 households that ran from July 2009 to June 2010.

The 2011 weights are based on 2009/10 spending patterns, while the 2008 weights were based on 2006/07 spending patterns. Just before the 2009/10 survey ran, the economy emerged from a five-quarter recession. Consequently, the 2011 CPI weights were affected by the economic situation at the time. There were decreases in the relative importance of the purchase of new housing, professional services associated with buying and selling houses, furniture, household appliances, and cars. The relative importance of food, rents for housing, and electricity all increased.

The updated CPI weights indicate that $23.55 of every $100 spent by households on goods and services covered by the CPI is spent on housing and household utilities, compared with $22.75 in 2008, when the previous review was implemented. This reflects increased spending on rent. Food accounts for $18.79 of every $100 spent, compared with $17.83 in 2008. This increase reflects rising food prices.

Other groups declined in relative importance, including transport (down from $16.18 to $15.12 of every $100 spent), with lower spending on cars contributing to the fall. Petrol declined from $5.47 to $5.27 of every $100 spent.

Following the 2008 CPI review, we published a retrospective superlative index, calculated between the June 2002, 2006, and 2008 quarters. This index indicated the effect of commodity substitution on the fixed-weight CPI. On 28 November 2011, we will release a paper that extends this series, using the weights calculated as part of the 2011 CPI review. The paper will also include an analysis of how the CPI would have tracked had the index not been reweighted in 2006 and/or 2008.

For more information, and a list of the goods and services added to or removed from the CPI basket, read the paper Consumers price index review: 2011.

Food price index review information paper

The food price index (FPI) measures the rate of price change of food and food services purchased by households. Statistics NZ has reviewed the FPI as part of a wider, three-yearly consumers price index review. We updated the basket of representative food items being tracked for the FPI, and reviewed the relative importance of food items in the basket.

The new relative importance of the FPI subgroups shows that about $38 of every $100 households spend on food is spent on grocery food. About $21 is spent on eating out or takeaways, about $16 is spent on meat, poultry, and fish. Fruit and vegetables account for $14, and the remaining $11 is spent on non-alcoholic beverages, such as soft drinks, and juices.

Four items were added to the FPI basket:

  • dried apricots
  • frozen berries
  • frozen chicken nuggets
  • flatbread.

No items were removed from the basket.

For more information, read Food price index review: 2011.

CPI papers presented at the New Zealand Association of Economists conference

The New Zealand Association of Economists 2011 conference was held in Wellington from 29 June to 1 July. Statistics NZ Prices staff attended the conference and Frances Krsinich, our senior researcher, presented Estimating price movements from scanner data. Her paper generated interesting discussion about the potential of scanner data for better estimating price movements in the CPI.

The session included two other papers on the CPI, both taking a historical perspective. Ekaterina Sadetskaya presented 'An Analysis of Provincial District Prices in New Zealand: 1885-1913' and James Keating talked about 'Early Influences on the Development of a Consumer's Price Index in New Zealand'. The combination of past and future views of the CPI gave attendees an unusual and useful perspective.

Andrew Coleman presented 'Price Discounting in New Zealand', which he co-authored with Emmanuel De Vierman. This paper used Statistics NZ information to estimate the effect of discounting on CPI movements.

The New Zealand Statistical Association also held its annual conference recently, at Auckland University from August 28 to 31. Frances Krsinich talked about the use of hedonic regression for estimating price movements from sample survey data in her paper 'Measuring the price movements of used cars and residential rents in the New Zealand Consumers Price Index'. This was a good opportunity to present some of the unique challenges inherent in price measurement to an audience that was less familiar with the subject.

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3. Nuts and bolts

Real estate and professional services in the CPI

The real estate services and the professional services classes had a combined expenditure weight of 0.90 percent in the CPI at the June 2011 quarter. The sources and methods used to compile these classes are explained in Real estate and professional services in the CPI.

Accommodation services and package holidays in the CPI

The accommodation services subgroup and the package holidays subgroup of the CPI had a combined expenditure weight of 1.49 percent at the June 2011 quarter. The sources and methods used to compile the accommodation services subgroup and the package holidays subgroup are explained in Accommodation services and package holidays in the CPI.

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4. On the horizon 

Local authority rates in the CPI

The CPI Local Authority Rates Survey is conducted annually in the September quarter, for a sample of territorial authorities and regional councils. Rates are surveyed once a year because local authorities usually strike their rates annually. While normally any rate changes come into effect from 1 July, not all territorial authorities and regional councils set rates during the September quarter. The small number of rates struck after the September quarter, combined with the timing of survey returns and processing, result in rates changes being shown in both the September and December quarter CPIs. For the past five years, between 80 and 90 percent of the weight in the sample of local authority rates has been included in the September quarter CPI.

More information on local authority rates is in the January 2011 Price Index News article Property rates and related services in the CPI.

Alcohol excise duty increase

The annual indexation adjustment of the excise duty on alcoholic drinks occurred on 1 July 2011. The adjustment was a 4.55 percent increase in the excise duty, based on the movement in the 'CPI less credit services' index from the March 2010 quarter to the March 2011 quarter.

The effect on retail prices should show fully in the CPI for the September 2011 quarter, depending on the timing of price increases in stores and the timing of price collection by Statistics NZ staff.

Impact of GST on the CPI

Goods and services tax (GST) rose from 12.5 percent to 15 percent on 1 October 2010. However, the rise in GST was not immediately reflected in the prices for some seasonally available goods and services in the CPI basket. The rise will be reflected when prices for these items are next collected. These items make up about 3 percent of expenditure on goods and services in the CPI. Of this 3 percent, nearly half was reflected in the March 2011 quarter and nearly half was reflected in the June 2011 quarter. The remainder will show in the September 2011 quarter.

In the September 2011 quarter, the higher rate of GST will be reflected for provincial rugby game admission prices and for those paying local authority rates annually.

The table below shows what the quarterly and annual percentage changes would have been had prices collected for the December 2010, and March and June 2011 quarters, been processed with GST of 12.5 percent for goods and services that are subject to GST. The CPI would have risen 0.9 percent in the June 2011 quarter, and 3.3 percent for the year to the June 2011 quarter.

CPI processed with GST at 12.5 percent

Quarter   

Percentage change from previous quarter

Percentage change from same quarter of previous year  Adjusted index number
Dec 2010 0.5  2.1   1116 
Mar 2011 0.8 2.6 1125
Jun 2011 0.9 3.3 1135

Care required when using the CPI to adjust monetary values

The CPI is used to adjust monetary values, such as in legislation and contracts. Care is required when using the CPI to adjust monetary values during the period in which the rise in GST is reflected in the CPI. Some goods and services in the CPI are not subject to GST, some are zero-rated for GST purposes (meaning the applicable rate of GST is zero), and the GST rise was not immediately reflected for all goods and services in the CPI.

Special care is required when the monetary values being adjusted exclude GST.

It would not be appropriate to adjust prices or monetary values that exclude GST (but which are subject to GST) by the CPI movement during the period in which the increase in GST is reflected in the CPI. This would mean that the GST increase is counted twice if the higher rate of GST were added to the GST-exclusive values.

Another common use of the CPI is to adjust housing rentals. Housing rentals are not subject to GST. Using the CPI to adjust rental values during the period in which the increase in GST is reflected in the CPI would mean that the adjustments would include the overall impact of the GST increase on the CPI.

For further information contact:

Daniel Griffiths or Chris Pike
Wellington 04 931 4600
Email: info@stats.govt.nz

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5. Development updates

Reviewing the business price indexes

Statistics NZ has started a 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 review these indexes and to collect commodity data for use in the national accounts.

The Minister of Statistics has approved a commodity data collection survey to collect information on the supply and use of goods and services (commodities) by economically-significant enterprises operating in New Zealand. This information will be used to balance 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.

This commodity information by industry will also be used to establish lower-level weights for the business price indexes, which are also used as deflators in producing a chain-volume measure of GDP.

We carried out the last redevelopment of the PPI from 2004 to 2010. The new rolling review is the first to use the Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06). As part of the rolling review, the ANZSIC06 industries are being prioritised. We will review industries on six-year cycles for most of them, and on either three-year or 12-year cycles for the remaining industries.

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

Peter Campion
Wellington 04 931 4600
Email: info@stats.govt.nz

Retail trade survey deflator review

Statistics NZ is updating the Retail Trade Survey (RTS) deflators. These deflators measure changes in the prices of goods and services sold by businesses in the industries published in the RTS. The deflators are used to remove the effect of price change, which allows change in the volume of retail sales to be estimated.

Each industry’s deflator consists of a 'basket' of indexes, drawn mainly from the CPI. The CPI indexes, and other indicators in each deflator's basket, represent the goods and services sold by the industry. Each of the goods or services is weighted to reflect the relative importance of the mix of goods and services sold by the industry.

The weights of the updated deflators will be mainly based on information used in the 2011 consumers price index review (including household spending patterns by industry), that was originally reported in the 2009/10 Household Economic Survey.

We are implementing the updated deflators for the September 2011 quarter RTS, which is scheduled for release on 14 November 2011.

For more information about the RTS deflator review, please contact:

Peter Campion
Wellington 04 931 4600
Email: info@stats.govt.nz

Labour cost index review

Statistics NZ reviews the relative importance of occupations and industries in the labour cost index (LCI) after each five-yearly Census of Population and Dwellings. LCI reviews help to ensure that the LCI continues to reflect the current labour market.

The LCI was scheduled to be reviewed in 2012, following the 2011 Census. The census will now be held on 5 March 2013, so the next LCI review is now scheduled for 2014.

For more information about the LCI review, please contact:

Peter Campion
Wellington 04 931 4600
Email: info@stats.govt.nz

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6. Making contact

Consumers price index and food price index output review

Statistics NZ will implement its 2011 review of the CPI when the September 2011 quarter index is released on 25 October 2011. As part of the review, we reviewed the information we make available for the CPI and the food price index (FPI) in the tables published with each information release, and on Infoshare.

In the April 2011 issue of Price Index News, we invited submissions on the information that we make available for the FPI and CPI. We received responses from several users. The following actions were taken as a result of the submissions.

  • We added a table to the FPI information release to help users understand the contributions of components to changes in the overall FPI.
  • The CPI information release text and tables are now available on USB drives at CPI media conferences.
  • Lists of items in the FPI and CPI baskets are publicly available for the first time since the 1970s (see tables 3 and 4 in the 'Available files' section of the FPI review: 2011 information paper, and the Consumers price index basket: 2011 tables in the 'Available files' section of the CPI review: 2011 information paper). 

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7. Release dates

Price index release calendar for the next three months

M = Media conference

October 2011

Mon 10 M Consumers Price Index: 2011 review – report
Thu 13 Food Price Index: September 2011
Fri 21 Labour Cost Index (All Labour Costs): June 2011 quarter
Tue 25 M Consumers Price Index: September 2011 quarter
 
November 2011
 
Tue 1 M Labour Cost Index (Salary and Wage Rates): September 2011 quarter
Fri 11 Food Price Index: October 2011
Thu 17 M Capital Goods Price Index: September 2011 quarter    
Thu 17 M Producers Price Index: September 2011 quarter

December 2011

Thu 1 M Overseas Trade Indexes (Volumes): September 2011 quarter (provisional)
Thu 1 M Overseas Trade Indexes (Prices): September 2011 quarter (provisional)
Tue 13 Food Price Index: November 2011

This issue of Price Index News was released on Wednesday, 12 October 2011.

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