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Price Index News: October 2015

1. Short stories

New CPI non-tradables analytical series

New CPI non-tradables analytical series introduces three new analytical non-tradable series. These will allow customers to better understand non-tradable inflation without the influence of government charges and tobacco.

Terms of trade with selected trading partners

Terms of trade looks at New Zealand’s terms of trade with some of our major trading partner countries.

2. Working with others

Presenting in Korea on our experience with scanner data

‘Macroeconomic policy and price measurement issues in a low inflation environment’ was the topic of a conference held recently in Seoul, from 20 to 21 August.

Prices senior researcher Frances Krsinich was invited to present on ‘quality adjustment with scanner data’. She shared New Zealand’s experience of implementing scanner data for consumer electronics products in our CPI, and talked more generally about our collaborative research into methods for price measurement from big data.

The conference was organised into three sessions:

  1. Macroeconomic policy in a low inflation environment
  2. Biases in price indexes
  3. Price measurement with scanner data.

Participants covered a range of macroeconomic policy and price measurement topics, including:

  • the interaction of global trend inflation with monetary policy targeting, presented by the Bank of Korea 
  • a decomposition of measurement bias in the Canadian CPI, from the Bank of Canada 
  • Cardiff University research on the use of scanner data to inform sampling schemes in a traditional CPI 
  • a paper by Statistics Korea on their development of an inflation index using online data.

2015 Voorburg meeting

In September 2015, James Griffin and Craig Liken prepared a short paper on how we measure veterinary services in the producers price index (PPI). Craig presented the paper to the Voorburg Group meeting in Australia on services PPIs and turnover measures.

See Services producer price index for veterinary services for a PDF of this paper (available from www.abs.gov.au).

The Voorburg Group of international experts focuses on service statistics. Its main purpose is to address issues related to producing service statistics. The group holds week-long meetings to discuss specific service statistics every year.

3. On the horizon

Action from PPI review

As part of a recent review of the scope and purpose of the producers price index (PPI) we made several decisions, one of which was to publish an expanded range of commodity indexes. We are now reviewing each commodity for confidentiality and fit-for-purpose quality and will publish the expanded range of commodities in Business Price Indexes: September 2015 quarter (19 November 2015).

See Producers price index commodities for a preliminary list of these commodities.

We currently publish the PPI industry indexes at New Zealand Standard Industry Output Classification (NZSIOC) level 3. However, we plan to publish most of our level 4 industry indexes (our most-detailed level of the NZSIOC classification), subject to confidentiality. Lower-level indexes that can be published will be available on Infoshare for the September 2015 quarter business price index release.

For example, we currently publish:

CC21: Textile, leather, clothing, and footwear manufacturing

We plan to publish two additional lower-level indexes:

CC211: Textile and leather manufacturing

CC212: Clothing, knitted products, and footwear manufacturing.

See data quality (industry publication level) in the June quarter Business Price Indexes release for more about NZSIOC level 3.

Timing of local authority rates in the CPI

We conduct the CPI Local Authority Rates Survey each year in the September quarter, for a sample of territorial authorities and regional councils. Around 90 percent of price movements for local authority rates are included in the September quarter’s CPI.

We survey rates once a year because local authorities usually strike their rates yearly. While normally any rate changes take effect from 1 July, not all territorial authorities and regional councils set rates during the September quarter. The small number of rates struck after this quarter, combined with the timing of survey returns and processing, result in rate changes being shown in both the September and December quarter CPIs.

GP and prescription fee changes in health group

The health group in the CPI contains a wide range of goods and services purchased by households, including general practitioner (GP) fees and prescription fees. The health group accounts for 3.94 percent of the total CPI.
  
From 1 July 2015, children aged under 13 years are eligible to access free GP visits and free prescriptions. This change will be reflected in the September 2015 quarter CPI and will result in lower prices for the 6–12-year age group.

Alcohol excise duty increases

The annual indexation adjustment of the excise duty on alcoholic drinks occurred on 1 July 2015. The adjustment was a 0.17 percent increase in the excise duty, based on a 0.2 percent increase in the 'CPI less credit services' index from the March 2014 quarter to the March 2015 quarter originally published on 20 April 2015.

The adjustment applied by the New Zealand Customs Service was based on the originally published March 2015 quarter CPI. It was not revised to align with the corrected increase of 0.3 percent for the year to the March 2015 quarter, published on 8 September 2015.

The effect on retail prices should show fully in the September 2015 quarter CPI, depending on the timing of price increases in pubs, clubs, restaurants, and liquor stores, and the timing of price collection by Statistics NZ staff.

Increases within the CPI ‘other private transport services’ and petrol

The CPI ‘other private transport services’ class contains services such as vehicle relicensing, driver licensing, warrants of fitness, road-user charges, parking services, and driving tuition. The ‘other private transport services’ class of the CPI represented 1.39 percent of the total weight of the CPI at the June 2014 quarter.

Road-user charges for a private motor car, administered by the NZ Transport Agency, increased 6.9 percent (or $5.00 for 1,000km) on 1 July 2015. They represent about 1/12th of the weight of the ‘other private transport services’ class. Transaction fees associated with purchasing road user charges rose slightly for some transaction methods. Excise duty on petrol also increased at that date – by 3 cents a litre. The full effect of both these price increases will show in the September 2015 quarter CPI.

On 1 July 2015 vehicle relicensing fees also changed, as a result of changes to the way ACC calculates levies for light vehicles. Levies are now based on how a vehicle protects its passengers and others on the road if it’s involved in a crash. Vehicle relicensing fees represent just under 3/5ths of the weight of the ‘other private transport services’ class at the June 2014 quarter, and will show a price fall in the September 2015 quarter CPI.

Postal charges

On 1 July 2015 New Zealand Post cut standard delivery from six days a week to three days a week in urban centres, citing a decline in the volume of letters sent. This resulted in a small reduction in the service experienced by customers for the same outlay. We will represent this fall in quality as a price rise in the September 2015 quarter CPI.

4. Development updates

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 producers price index (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

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.

We are engaging with key stakeholders and suppliers to review our existing methods for insurance services and electricity. As part of this we are reviewing our collection and calculation methods – to ensure they best meet the needs of our customers, stakeholders, and suppliers.

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

Labour cost index review in final phase

We are now in the final phase of the labour cost index (LCI) review, which is reweighting the non-wage labour costs component of the index (eg the costs for annual leave and superannuation). The review is undertaken to update the weights of the LCI, which measures changes in wage rates and non-wage labour costs so that these reflect the changes in the industry and occupation structures of the labour market. 

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.

Why we review

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.

About our consultation

In our final phase of the review, we also consulted LCI customers and stakeholders and sought public feedback so we could better understand the value they obtain from the non-wage components of the LCI. This was to ensure that the statistics we provide continue to remain relevant to customers.

To help customers assess the value of non-wage labour costs, we did an analysis of the composition of the LCI all labour costs that examined the effect of each component by looking at time series data. For more information, see Composition of LCI all labour costs: Assessing the impact of discontinuing non-wage labour costs.

We are still considering the consultation results. If they show the LCI non-wage data is no longer providing value to customers, we will consider stopping publication of LCI non-wage and all labour costs. If this occurred, it would be after these LCI indexes for the June 2015 quarter are published on 21 October 2015.

The LCI salary and wage rates will continue to be published quarterly, and their relevance would continue to be maintained by reviewing the weights following the 2018 Census.

To find out more or let us know what you think, contact:

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

5. Making contact

New household price indexes – What would you like?

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

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

This initiative came from recommendations made by the 2013 CPI Advisory Committee.

Decision on 2013 CPI Advisory Committee recommendations provides details about our decisions on the committee’s recommendations.

We are now seeking your views on the new indexes.

Public consultation on household living-costs price indexes asks questions for three topics we’re considering and would like feedback about:

  • how we define the household groups
  • how we combine household expenditure patterns 
  • how we treat interest and insurance

To make a submission, or for further information, please email us or contact:

Alan Bentley or Katrina Dewbery
Wellington
04 931 4600

We are happy to meet with you to discuss your needs.

Submissions must be received by 5pm Friday, 27 November.

6. Release dates

Price index release calendar for the next three months

October 2015

Tue 13 Oct               Food Price Index: September 2015

Fri 16 Oct        M     Consumers Price Index: September 2015 quarter

Wed 21 Oct              Labour Cost Index (All Labour Costs): June 2015 quarter

November 2015

Wed 4 Nov       M      Labour Market Statistics: September 2015 quarter

Thu 12 Nov               Food Price Index: October 2015

Thu 19 Nov               Business Price Indexes: September 2015 quarter

December 2015

Tue 1 Dec                 Overseas Trade Indexes (Prices and Volumes): September 2015 quarter (provisional)

Fri 11 Dec                 Food Price Index: November 2015

M= Media conference

This issue of Price Index News was released on Tuesday, 13 October 2015.

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