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| Information about the Consumers Price Index |
Availability
| Valid From: .. | 10/25/2006 |
| To: .. | Ongoing |
| Frequency: .. | Quarterly |
Design
Purpose: The CPI is a measure of the price change of goods and services purchased by private New Zealand households. The CPI measures the changing cost of purchasing a fixed basket of goods and services which represents the average expenditure pattern of New Zealand households at the index base period.
It is used as a measure of inflation, an indicator for monitoring economic and monetary policy, an indicator of the effect of price change on the purchasing power of households' incomes, as a means to adjust benefits, allowances and incomes, and as a price deflator.
General Information ..1. What is a price index?
A price index measures the change in prices between time periods for a set of goods and services.
A price index is a single figure that shows how a whole set of prices has changed over time. A price index uses one number to represent the prices being charged for various goods and services at the wide range of outlets and locations where they are being purchased. The average price level of goods and services in the expression base period are assigned an index number of 1000. This is the benchmark to which average prices in other periods are compared. Thus, if the index number for a period is 1150, prices have increased by 15.0 percent since the base period.
Changes in the level of a price index are calculated by weighting the changes in the surveyed prices of a particular set of items. The set of items represents the basket of goods and services that the index purports to measure. Item (expenditure) weights are estimates of the overall significance of each of the different items in the basket.
2. Reference population
The population coverage of the CPI relates to the expenditure of private, New Zealand-resident households living in permanent dwellings. The reference population covers approximately 98 percent of the usually-resident population. There are no exclusions based on income source or geographic location.
The target population for the Household Economic Survey (HES) mirrors the reference population for the CPI. The HES excludes residents of temporary dwellings and households in very remote parts of the North and South Islands and on offshore islands, including Great Barrier, Kawau, Stewart and the Chatham Islands. Some types of expenditure are also excluded because their price movements cannot be satisfactorily measured nor can they be related to the price movements of items which are price-surveyed. These include works of arts, illicit drugs, pets and other livestock, gambling, most legal services etc.
3. Conceptual Approach
The New Zealand CPI is based on an 'acquisitions' concept.The acquisitions approach measures price change over time for the net acquisition of goods and services to the household sector overall. Such an approach is in line with the primary purpose of the CPI to be a price index that measures inflation in the goods and services purchased by resident private households.
Further information regarding the conceptual approach to the CPI please refer to the paper "What should the Consumers Price Index measure?" that was prepared for the 2004 CPI Revision Advisory Committee (RAC).
4. Weights
Weights show the relative importance of an item to the overall set of items.
Expenditure weights
Expenditure weights are derived mainly from the HES and show the proportion of average household expenditure made on the items in the regimen (see below for detailed regimen).
Items are directly represented in the CPI when their expenditure recorded in the HES reaches approximately 0.1 percent of total expenditure, and are considered for dropping when their weight is less than 0.1 percent of total expenditure.
For a number of reasons, not all HES based estimates are suitable for calculating weights in the CPI. Data showing unusual expenditure trends are investigated using information from manufacturers, retailers, other surveys etc. and adjusted if necessary. Expenditure in some areas of the HES, such as tobacco, alcohol and contraceptives, is known to be understated. Here, the CPI weights are based on a variety of production and trade statistics.
The table below gives the proportion of expenditure weight derived from the HES and from other sources fro each CPI regimen group.
The table below details the CPI weights down to the third level, or class level, of the classification, the New Zealand Household Expenditure classification (NZHEC). Expenditure weights are given for the current weight period, the June 2006 quarter, and recent weight periods for comparison.
Outlet weights
As it is not practical to survey prices from every possible outlet, a selection of outlets are priced and outlet weights used to combine the prices collected from each.
Household Economic Survey Data on expenditure by storetype is used to weight prices collected at groupings of outlet types, such as convenience stores, chemists, service stations, butchers, hardware stores, department stores and supermarkets. For example if supermarkets sell four times as much meat as butchers, the price movement of meat in supermarkets will have four times the impact on the overall price movement for meat as the price movement for butchers.
Further, Retail Trade Survey data is used to weight supermarket store chains relative to each other for combining prices collected at supermarkets.
Regional indexes, for each of the 15 regions where prices are surveyed, are combined to calculate a New Zealand CPI using population weights. Each region is assumed to have the same spending pattern i.e. the same goods and services are price surveyed in each region. The exceptions to this are reticulated gas and suburban rail services which are not available in all regions.
The population of each territorial local authority (or a proportion of it) is assigned to the most appropriate of the 15 urban areas priced in the CPI, taking the following factors into account:
- population distribution within the area and natural geographic boundaries;
- the centres in which the population of the local authorities purchase their goods and services (major durables and services not available in smaller centres particularly);
- the location of wholesalers and distributors from which stores in the local authority area obtain stocks.
For more information on weighting issues refer to the paper “A review of the Consumers Price Index sample selection framework” that was prepared for the 2004 CPI Revision Advisory Committee (RAC).
5. Pricing
How is it decided which items to price
An accurate measure of the overall level of price change can be calculated by periodically surveying the prices of a representative sample of goods and services. The sample is selected taking into account
- the sample must represent the range of commodities purchased by private New Zealand households;
- price movements must be typical of the range of commodities the item represents;
- it must be practical to survey prices for the selected commodities at regular intervals over the life of the index;
- the price of each commodity of the same quantity and quality must be surveyed each period (otherwise prices will be adjusted);
- price surveys should occur frequently to ensure that price changes register in the index in a timely manner.
Where are prices collected
Prices are surveyed for all the goods and services selected for the CPI. This generally takes place in the 15 main urban areas which are:
Whangarei |
Auckland |
Hamilton |
Tauranga |
Rotorua |
Napier/Hastings |
New Plymouth |
Wanganui |
Palmerston North |
Wellington |
Nelson |
Christchurch |
Timaru |
Dunedin |
Invercargill |
Exceptions are items that are unavailable in some regions or items whose prices are assumed to move uniformly across all regions e.g. motor vehicle registration where there is one price throughout New Zealand or construction of new dwellings which is measured in a sample survey which is not accurate enough to provide regional estimates.
Prices are collected in a wide range of outlets since most items are sold in more than one type of outlet. For example a video recorder can be purchased from a specialist shop, a department store or a discount warehouse. The rate of price change will usually vary between these outlets. HES and retail trade data are used as a guide to determine which outlets to price survey for a particular commodity.
For more information on weighting issues refer to the paper “A review of the Consumers Price Index sample selection framework” that was prepared for the 2004 CPI Revision Advisory Committee (RAC).
How are prices collected
Prices are surveyed by personal visit, by mail, or directly from collection agencies (administrative or electronic collection) depending on the item.
Most prices are collected by personal visits by Statistics NZ field collections staff. This is a time consuming and resource intensive task however the complexity of obtaining accurate prices means that it is impractical to collect the prices by postal survey. During pricing any changes in quality or quantity are noted by staff and discussed with the retailer. This method places lower burden on the respondent than a postal survey.
Postal surveys are used where it is not practical for an interviewer to pay a personal visit to an outlet or where a price can be accurately obtained from a questionnaire.
Where possible Statistics NZ uses electronic information obtained directly from agencies e.g. rentals from Housing New Zealand.
When prices are controlled by a national authority and the same price applies to all regions e.g. motor vehicle relicensing fees or when the expenditure on an item, e.g. hotel and motel accommodation, is not linked to the area of residence, or when the sample size means that regional data would be unreliable, national average prices are used. This means that the same price is used for each region in the CPI.
When are prices collected
Most items are priced at the mid-point of each quarter.
Items showing volatile price behaviour or that have large weights are often collected monthly. Food and electricity are in this category. Petrol, diesel and fresh fruit and vegetable prices, which are extremely volatile, are collected weekly.
Items like tertiary education fees, where the prices are set once a year, are surveyed annually.
For more detailed information on pricing in the CPI refer to the paper “Obtaining Representative Prices in the Consumers Price Index” that was prepared for the 1997 CPI RAC.
6. Ongoing maintenance of the CPI
Out of stock items
At times, the items priced are not available as they may be temporarily out of stock or permanently removed from sale. If an item is removed from sale from an outlet, then it will be priced where possible in a similar outlet. When it is no longer available, or another item is clearly more popular, it will be replaced e.g. records were replaced by compact discs.
If an item is temporarily out of stock the price is carried forward from the previous period. Carrying forward can occur for a number of pricing periods depending on the frequency of the price survey. After a specified number of times the outlet or item will be replaced.
Outlet replacement
The replacement of an outlet can occur for a number of reasons. The most common are when an outlet closes or is taken over, when stocks are run down, or the item priced is no longer available on a regular basis.
If an outlet needs to be replaced, then another outlet of the same or similar type and in the same area is chosen.
If a chainstore outlet closes in a particular region, then it is either replaced by another store of the same chain or, if no other store exists, the chain is dropped from the survey in that region. If an independent outlet closes, it is replaced by another independent outlet of a similar nature.
If an outlet no longer stocks a priced item, or if it is noticed that stocks are continually run down, then depending on the circumstances, a replacement outlet is found.
When a new chain opens in a region, it is included in the outlet sample so that each chain of that particular type in the region is represented. Before such an outlet can be introduced into the sample its market share must be known so that an outlet weight can be calculated. A new outlet often introduces price instability as consumers respond to promotional activities and trial the new outlet. Hence new outlets are only introduced to the CPI when reliable pricing and weighting information is available.
For more information on outlet selection refer to the paper “Methods of Outlet Selection and Weighting in the Consumers Price Index” that was prepared for the 1997 CPI RAC.
Quality control
The aim of the CPI is to measure the price change in identical items over time. Any price movement due to a change in quality should be excluded from the CPI so that the true price change excluding all other factors is measured.
In practice, it is not always possible to price the same items over time. Manufacturers regularly change items and other items are no longer produced. In these cases a change in quality may occur when a substitute item is introduced.
Quality assessments are done to put a monetary value on the change in value as perceived by the consumer between the old and new item. Prices are then adjusted so that no price change is shown that is related to the change in quality.
For more information on this aspect of the CPI see the paper “Quality Change and Assessment in the CPI” that was prepared for the 1997 CPI RAC.
Seasonal adjustment
Prior to June 2006, fresh fruit and fresh vegetable items that exhibited a seasonal pattern were adjusted to remove the effect of normal seasonal change. This treatment was used to reduce the influence of normal seasonal price fluctuations. However, the treatment does not completely eliminate the effects of seasonal fluctuations if shifts in seasonal patterns occur. Food is the only group in the CPI in which seasonal adjustment was applied.
From the June 2006 quarter onwards, the CPI will incorporate seasonally unadjusted prices for fresh fruit and fresh vegetables. This is in line with a recommendation made by the 2004 CPI Revision Advisory Committee. The ongoing, fully unadjusted CPI is linked at June 2006 quarter to the previously published CPI, which is partly seasonally adjusted. As such, annual movements calculated over the annual period encompassing the June 2006 quarter will be based on fully unadjusted index numbers for the latest month compared with partly adjusted index numbers for the same month of the previous year.
7. Elementary aggregate formulae
The 2004 CPI Revision Advisory Committee recommended that Statistics NZ should move to using the geometric means (or Jevons) formula to calculate elementary aggregate indexes for goods and services that are considered to be subject to outlet substitution (recommendation 9).
Prior to the September 2006 quarter, the CPI used a 'ratio of arithmetic mean prices' (or Dutot) formula to combine surveyed prices at the first (or elementary) stage of aggregation. The Dutot formula is:
In practice, Statistics NZ uses a weighted arithmetic mean formula, with the weights, where available, representing the relative importance of outlet types such as supermarkets relative to convenience stores, and the relative importance of individual outlets (eg supermarket chains). Where weighting information is not available, outlet types and/or outlets are equally weighted.
Introduced at the September 2006 quarter, following the review of the CPI, the 'geometric mean of price relatives' (or Jevons) formula is being introduced for some goods and services in the basket. The Jevons formula is:
In practice, Statistics New Zealand uses a weighted geometric mean formula, with the weights, where available, representing the relative importance of outlet types such as supermarkets relative to convenience stores and the relative importance of individual outlets (eg supermarket chains).
The Dutot formula assumes that households purchase the same quantities at each surveyed outlet in each period. By comparison, the Jevons formula assumes that households spend the same amount at each surveyed outlet in each period. This implies that increased quantities are purchased from outlets showing lower than average relative price change and decreased quantities from outlets showing higher than average price change. Use of the Jevons formula is recommended by the ILO for goods and services where households are able to substitute towards outlets showing lower relative price change.
The Jevons formula will be used to calculate the elementary aggregate indexes for items where outlet substitution is possible (eg for groceries and appliances). The Dutot formula will continue to be used for other items where outlet substitution is not possible (eg local authority rates), where prices are subsidised and may fall to zero (eg GPs' fees), for fresh fruit and vegetables (as the first stage of aggregation is across both outlets within each region and across weeks within each month), and where it is not currently practical to adopt the Jevons formula.
8. Index formulae
The index is calculated using the price relative form of the base weighted Laspeyres formula.
Laspeyres index
Where Pit = Price of item i (i = 1,.....,m) in period t
Pio = Price of item i (i = 1,.....,m) in the base period
Qio = Quantity of item i purchased in the base period
The Laspeyres index measures the change in cost of purchasing the same basket of goods and services in the current period as was purchased in the specified base period. The prices are weighted by quantities in the base period.
The price relative form of the Laspeyres index is used by many statistical agencies around the world. Statistics NZ adopted this form in the major revision of 1993 and use it in all aggregations above the calculation of regional price data.
Laspeyres price relative index formula
Where Pit = Price of item i (i = 1,.....,m) in period t
Pio = Price of item i (i = 1,.....,m) in the base period
Eio = Expenditure on item i purchased in the base period
= PioQio
It produces the same results as the basic Laspeyres formula but means that expenditure data from the HES can be used directly in the index formula.
For more information on the structure of the CPI, refer to the paper “Calculation and Structure of the Consumers Price Index” that was prepared for the 1997 CPI RAC.
9. The Food Price Index (FPI)
Food is the only commodity group of the CPI for which an index is prepared each month. For some items in the fresh fruit and vegetables sections, special treatment is used to reduce the influence of normal seasonal price fluctuations. This treatment does not completely eliminate the effects of seasonal fluctuations if shifts in the seasonal patterns occur.
Fresh fruit and vegetable prices are surveyed weekly and the balance of food prices are surveyed on or around the 15th of the month.
More detail on the FPI can be found in the separate Profile for the Food Price Index.
Output Variables
Output variables are pieces of individual information that can be extracted from the survey/output data. Often output variables can be cross tabulated with other output variables, for example sales by industry classification. The list below contains all current and past output variables which have been released for this survey/output.
The most comprehensive source of published CPI data is Statistics NZ’s computerised time series database, INFOS. This is an on-line statistical service which can be accessed from a growing number of private and public computer terminals throughout the country.
The term "Consumers Price Index" is understood to refer to the CPI all groups for New Zealand. The current expression base is the June 2006 quarter (=1000).
The CPI encompasses a multi-dimensional matrix of sub-indexes that are aggregated for a variety of combinations of geographical areas. Indexes are calculated for 11 groups, 44 subgroups, 105 classes, 176 sections, 215 subsections, 487 items and 686 subitems. The following tables detail the indexes available on INFOS and their frequency. Other publications contain a less comprehensive range of CPI indexes.
Extract from the INFOS index of the database listing series.
Changes in Output Variables over time
Guide to Interpreting Data
Summary of Changes to Survey/Output ..1.0 Introduction
There have been three distinct phases in the historical development of retail/consumers price indexes in New Zealand. The first phase up to the end of World War II shows early developments and refinements in retail price indexes. The second phase began in 1948 with the first government-appointed committee making detailed recommendations for a revision, a practice that has continued at regular intervals since. The beginning of the third phase in 1974 saw a significant change in direction with respect to weighting. The consumption approach, which had been used up to that time, was no longer considered appropriate and was replaced by an expenditure-based system for which significantly more accurate data was available. Up to 1983 this expenditure-based system was revised at three-yearly intervals with alternating major and minor revisions. The cycle was broken when the major revision scheduled to take place in 1986 was deferred due to the introduction of the Goods and Services Tax (GST). That revision was carried out in 1988. The most recent major revision was completed in June 2006, and will be carried out on an ongoing basis in the future.
A summary of the major points from each major revision follows. For more information on the history of the CPI, refer to the paper Calculation and Structure of the CPI that was prepared for the 1997 CPI RAC.
1.1 Retail price indexes up to the end of World War II
- The earliest official and systematic investigation of retail prices in New Zealand began in 1914 and was published in the Report on Cost of Living, 1891-1914.
- Retrospective collection of price data was carried out in Auckland, Wellington, Christchurch and Dunedin, each of which was given equal weight.
- The commodity groups covered were food, housing (rent), and fuel and light.
- The resulting index series was based on average annual aggregate expenditures for the four centres for the period 1909 to 1913 and calculated using the Laspeyres formulae.
- From 1914, the coverage of price surveys was extended to 25 urban areas for commodities in the original groups, and population weights were introduced.
- The effect of wartime conditions and pressure for wage arbitration prompted further expansion of price collections in 1918.
- In 1924, the clothing and miscellaneous groups were incorporated into the index, and the publication of a quarterly all groups index commenced.
- The index was revised in 1930 and the weighting pattern thoroughly reviewed.
- During World War II, the Department of Statistics continued to survey the prices of all commodities covered by the 1926-30-based index.
- After the war these data were used to calculate revised index numbers for the years 1942 to 1949, during which period only a Wartime Price Index had been published.
- A method of adjusting for seasonal variations was introduced at this stage.
1.2 Post-war revisions of the CPI to 1974
The 1948 revision
- The first RAC was appointed by Government in 1948 to review the compilation of the index and identify the various theoretical concepts to be used.
- The regimen was no longer limited to essential commodities but was designed to cover “the whole range of commodities and services used in the average household - with representation as far as possible, of the amenities of modern living”
- The housing group incorporated the rentals of furnished properties, the cost of owner-occupied housing and rentals of unfurnished housing. A user-cost approach was adopted for owner-occupied housing.
- The regimen comprised five commodity groups - food, housing, fuel and light, clothing and footwear, miscellaneous.
- To improve the accuracy of price quotations and initiate quality control procedures, the Department of Statistics appointed its own team of field staff.
- The weighting pattern of the new index was derived from quantities based primarily on the latest available statistics of production, exports, imports and manufacturing inputs.
The 1955 revision
- Urban areas in which prices were surveyed were reduced to 21 and individual index numbers were published for each.
- Direct estimates of consumption based on retail sales began to be used in the derivation of the weighting pattern.
- Fewer commodities were excluded on the grounds of luxury status, resulting in a net increase in the number of regularly priced items.
- Important changes were made in the treatment of seasonal items (fruit, vegetables and eggs), in the housing area, and for measuring the movements in transport charges.
The 1965 revision
- The CPI continued to be subdivided into six groups and 15 subgroups.
- Index numbers were calculated for 14 individual centres (but prices were collected in 25 centres), comprising the four main centres and ten other larger centres. Series were also produced for North and South Island groupings of the smaller centres.
1.3 Revisions of the CPI from 1974
The 1974 revision
A fundamental conceptual change was made to the CPI at the time of the 1974 revision from this consumption-based approach to an expenditure-based approach.
The 1977 revision
During this minor revision attention was focused on updating the expenditure pattern of the index and incorporating up-to-date population weights for the urban areas in which price surveys were conducted.
The 1980 revision
A major change was made in the derivation of the overall weight for the purchase and construction of dwellings. In the 1974 and 1977 revisions the weighting calculation incorporated the expenditure of households either acquiring a dwelling, or selling a dwelling and buying a replacement (In this second case, the net cost - i.e. the difference in price between the sale and the purchase - was used in the calculations). The 1980 revision incorporated the net proceeds of all sales made by households, including those who sold dwellings and did not make a corresponding purchase. This change was in accordance with the recommendations of the 1978 RAC and contributed to a considerable fall in the weights given to the direct costs of purchase and construction of new dwellings.
The 1983 revision
- Commodity expenditure and population weights were updated during the 1983 minor revision.
- Improvements were made to price survey procedures for insurance, health care, accommodation and entertainment admissions.
The 1988 revision
- The 1988 revision was originally scheduled for 1986, but due to the introduction of GST, the 1985 RAC recommended that it be postponed until Household Economic and Income Survey (HEIS) data free from the effects of the pre-GST spending boom became available.
- Because of the deregulation of the economy initiated in 1984, new or expanded price surveys were introduced for a range of commodities and services.
- The index regimen was also restructured for the first time since 1974. The new structure disaggregated the regimen into more useful and homogeneous commodity groupings. The former miscellaneous group was divided into tobacco products and alcoholic drinks; personal and health care; recreation, education and generalised credit.
- The number of centres that were price surveyed was reduced to 20.
- In 1991 the number of centres that were price surveyed was further reduced from 20 to 15.
- The first Reserve Bank Policy Targets Agreement (PTA) was signed in 1990. The Reserve Bank was required to achieve and maintain price stability with 0 to 2 percent annual underlying inflation as a target by December 1992. For the PTA, inflation was to be measured by the CPI less the effect of changes in interest rates, some government charges and international commodity price shocks.
The 1993 revision
- Credit was viewed as a service in its own right and a major structural change was made to the regimen with the introduction of a separate credit services group.
- Following a recommendation from the 1991 RAC, the price indicator for dwellings was adjusted to represent the price movements of new dwellings only.
- Postal survey questionnaires were extensively redesigned and outlet samples were also reviewed and updated where necessary.
- Price surveys for mail-order clothing, door-to-door cosmetics, and farm gate outlets for fresh fruit and vegetables were introduced.
- A selection of small towns were also surveyed to determine whether their price movements differed significantly from those in the 15 price-surveyed urban areas.
- The seasonal adjustment process for fresh fruit and vegetables index was revised, with seasonal factors being updated annually. Fixed weights were introduced for fresh fruit and vegetables, replacing the system of variable weights which had previously been used.
Between the 1993 and 1999 revisions
- Since the 1993 revision, Statistics NZ has developed a new index calculation system that incorporates the price relatives formula, a variant of the Laspeyres index.
- In 1995, a research index for superannuitant households was first published.
- Item weights and prices of some items within the CPI are now reviewed annually. The first of these reviews was completed in the June 1996 quarter. Any changes to expenditure weights are presently generally performed below the published regimen level.
The 1999 revision
- Interest and residential section prices removed from the CPI all groups.
- Introduction of the use of hedonic regression quality adjustment of used cars and fridge-freezers prices.
- The inclusion of charges for bank account maintenance, bank transactions, and other bank fees into the ‘credit services’ group in the index
The 2006 revision
The 2006 CPI review encompassed a number of aspects. The basket of representative goods and services has been reselected and reweighted, using information from the 2003/04 Household Economic Survey (HES) and other sources.
The sample of retail outlets from which prices are collected has been reselected for the first time since the 1999 review. Item specifications have been updated and the sample of product sizes, brands and varieties has been reselected. While the sample of 15 regional centres is remaining unchanged, price collection effort is being redistributed more towards the larger cities.
A new expenditure classification has been adopted. The new classification, called the New Zealand Household Expenditure Classification (NZHEC), is being used for both the reweighted CPI and the 2006/07 HES, which went into the field in July 2006. The new classification is based on the international standard Classification of Individual Consumption According to Purpose (COICOP) and has been adapted to suit New Zealand conditions. Index time series based on the new classification have been recast from the June 1999 quarter up to the June 2006 quarter.
The geometric means (or Jevons) formula will be used in the reweighted index to calculate elementary aggregate indexes for goods and services that are considered to be subject to outlet substitution. The Jevons formula, which is recommended by the International Labour Office (ILO), implicitly assumes that consumers increasingly favour outlets showing lower relative price change, whereas the formula used in the current CPI, the ratio of arithmetic mean prices (or Dutot), assumes that consumers do not substitute between outlets.
The reweighted CPI All groups index will no longer include prices that are seasonally adjusted. Until the review, fresh fruit and vegetable prices were seasonally adjusted, while the prices of other goods and services known to exhibit seasonality (such as international airfares and holiday accommodation) were not adjusted. This change was recommended by the CPI Revision Advisory Committee.
The range of regional indexes that are routinely published is being reduced from the 15 regional centres to five broad regions based on regional council areas (Auckland, Wellington, Rest of North Island, Canterbury and Rest of South Island). The regional indexes currently being published are not considered fit for purpose, as they make use of national movements, where regional variation is possible, for about 30 percent of the basket (based on expenditure weight).
National movements, where regional variation is possible, are currently being used for such important goods and services as construction of new dwellings, dwelling rentals and used cars. Indexes for the five broad regions will make use of price movements that correspond to the respective broad regions for construction of new dwellings, dwelling rentals and used cars.
For the first time during a periodic CPI review, substantial use has been made of retail transaction data, obtained from ACNielsen in New Zealand and GfK in Australia. ACNielsen collects details of sales of barcoded products that are scanned at checkout counters in supermarkets up and down the country. GfK collects similar information for a range of small and large appliances sold through most of New Zealand’s main appliance retailers and department stores. The information has been used to help determine the expenditure weights of some goods in the CPI basket, to select representative product sizes and varieties to survey, and to ensure that the mix of brands in the CPI price samples reflects market shares.
New CPI weights
As part of a three-yearly cycle, the CPI will have new weights, effective from June 2006. New weights apply to all indexes, including regional indexes and non-standard indexes, at all levels from the regimen item level and upwards. New weights are also available for the interest group, which is not part of the CPI regimen.
Some changes to the methods used in estimating CPI weights mean that the weights are not strictly comparable with those used in 2002. Weights published are expenditure weight shares, and changes in expenditure shares do not necessarily imply similar changes in actual levels of expenditure. Users interested in changes in consumer expenditure are referred to the HES or estimates of household consumption expenditure from the national accounts.
Changes in methodology
The total estimated expenditure used in the creation of the weights in 2006 is $69.6 billion, compared with total estimated expenditure in 2002 of $58.6 billion, an increase of 19 percent. This is due in part to inflation, population growth, growth in real expenditure and change, and improvements in the methods and data sources used to derive the weights.
When 2000/01 HES expenditure estimates were originally published, they were based on a benchmark number of 1,371,000 private households living in permanent dwellings. Prior to publication of the 2003/04 HES expenditure estimates in 2004, it was found that the benchmark number of households used in 2000/01 was understated. Updated 2000/01 HES expenditure estimates were published in 2004. They were based on a revised number of 1,432,000 households. This resulted in the 2000/01 HES expenditure estimates increasing by about 4 percent, on average, across the expenditure classification.
The benchmark number of households for the 2003/04 HES was 1,494,500, 4.3 percent higher than the updated benchmark for 2000/01, but 9.0 percent higher than the original benchmark.
The originally published 2000/01 HES expenditure estimates were used to calculate the 2002 CPI weights. This means that CPI expenditure weights for 2002 that were independently estimated from other sources were slightly overweighted relative to the weights derived directly from the 2000/01 HES. All things being equal, the independently estimated weights for 2006 have slightly lower relative importance than they did in 2002, as the 2003/04 HES estimates are based on higher population benchmarks.
New expenditure classification
The upper three levels of NZHEC are being used to produce published CPI indexes and expenditure weights. For the reweighted CPI, there are 11 groups at the first level, and 44 subgroups and 105 classes at the second and third levels. These numbers compare with the current CPI classification’s nine groups, 22 subgroups, 70 sections and 315 subsections.
CPI categories at the first level of NZHEC are:
01 Food
02 Alcoholic beverages and tobacco
03 Clothing and footwear
04 Housing and household utilities
05 Household contents and services
06 Health
07 Transport
08 Communication
09 Recreation and culture
10 Education
11 Miscellaneous goods and services.
The major changes in the new classification for the CPI are:
- There are now 11 groups instead of nine at the highest level.
- There is a separate group for communication goods and services. Under the old classification, these were in the household operation group.
- There is a separate group for education. Under the old classification, this was in the recreation and education group.
- There is a separate group for health. Under the old classification, this was in the personal and health care group. The remaining goods and services from the personal and health care group are now in the miscellaneous goods and services group.
- Within the food group, there is a subgroup for non-alcoholic beverages. Previously, these were part of the grocery foods subgroup and the ready-to-eat food section (poured soft drinks).
- Household fuels, such as electricity and reticulated gas, are in the housing and utilities group. Under the old classification, these were in the household operation group.
- All of the different types of insurance services are in the same group (miscellaneous goods and services). Under the old classification, insurance was split across different groups (eg dwelling insurance was in the housing group, and vehicle insurance was in the transport group).
- Audio and visual appliances and computing equipment are in the recreation and culture group. Audio and visual appliances were previously in the household operation group, and computing equipment was in the recreation and education group.
Food
The food group has a June 2006 expenditure weight of 17.38 percent, compared with 17.21 percent in 2002.
Fruit and vegetables have a June 2006 quarter expenditure weight of 2.20 percent, compared with 2.03 percent for the June 2002 quarter. Total expenditure by households on both fruit and vegetables has increased. However, the relative weight for fruit has fallen. The increase in the expenditure weight for fruit and vegetables is partly due to improvements in the way grocery expenditure not further defined by households reporting in the HES was allocated across items in the basket.
The share of the total CPI weight for meat, poultry and fish has fallen, to 2.82 percent. This is partly due to improvements in the way grocery expenditure not further defined by households in the HES was allocated across items in the basket. Price increases since the last reweight for meat, poultry and fish have been lower than the overall price increases for food, which also caused its share of the total food weight to fall.
The relative weight for grocery food (6.70 percent) is slightly higher than its share of the total weight in 2002.
The weight for non-alcoholic beverages (1.62 percent) has fallen, overall. The weight for coffee, tea and other hot drinks has increased slightly, while the weight for soft drinks, waters and juices has decreased.
There has been a strong increase in the overall weight for the restaurant meals and ready-to-eat food subgroup (4.03 percent compared with 3.60 percent in 2002). This reflects increases in spending by households on these types of items.
Alcoholic beverages and tobacco
The alcoholic beverages and tobacco group has a June 2006 expenditure weight of 7.20 percent, compared with 8.72 percent in 2002.
Changes in weight-estimation methods, rather than a real decline in spending, largely explain the relative drop in the weight of the alcoholic beverages subgroup from 6.43 percent in the June 2002 quarter to 4.97 percent in the June 2006 quarter. See section 14.06 for more details.
The weight for cigarettes and tobacco has fallen slightly, from 2.29 percent to 2.23 percent.
Clothing and footwear
The weight for clothing and footwear (4.75 percent) has remained similar to its share of the total weight in 2002.
Housing and household utilities
Housing and household utilities continues to be the highest-weighted group. However, its share of the CPI weight has fallen from 21.52 percent to 20.02 percent.
The group's decrease in weight is driven by a fall in the weight for purchase of housing (from 8.47 percent to 4.66 percent). This is partly offset by a strong increase in the weight for rentals for housing (from 5.54 percent to 6.87 percent). The fall in the weight for purchase of housing is not a real decline and results mainly from the adoption in 2006 of an improved weight-estimation method that reflects a falling rate of home ownership rate.
Household contents and services
The weight for household contents and services has increased to 5.49 percent, compared with 5.13 percent in 2002.
Within this group, some weights were affected by both changes to methods (there was some benchmarking to the RTS in 2002, which was not considered necessary in 2006) and to differences in the structure of the NZHEC classification compared with the previous classification, which changed the way that expenditure on goods and services not directly included in the basket was allocated across those that are in the basket.
Health
The health group has a June 2006 quarter expenditure weight of 5.23 percent, compared with 4.83 percent in June 2002.
The increase for this group is mainly due to the weight for medical products, appliances and equipment having risen from 0.62 percent to 1.13 percent. This has been caused by two factors. The 2003/04 HES was used to estimate the weight for prescription medicines (within the pharmaceutical products class), which led to a higher weight, as weaknesses were identified in the alternative information source used in 2002. In addition, an improved method for allocating the income of optometrists across the consultation, prescription glasses and contact lens goods and services in the basket contributed to a higher relative weight in 2006 for the therapeutic appliances and equipment class (and a corresponding lower relative weight for the medical services class).
Transport
The transport group has a June 2006 quarter expenditure weight of 17.24 percent, compared with 15.51 percent in June 2002. The rise in the weight for transport is the most significant absolute increase of the 11 groups.
The weight for purchase of vehicles has risen to 5.24 percent, partly driven by an increase in the weight for the purchase of new motor cars. Part of the increase for new cars reflects an improved method for estimating expenditure on more highly specified models and luxury European vehicles.
The weight for the private transport supplies and services subgroup has risen strongly, from 6.22 percent to 9.27 percent. This is mainly due to an increase in the weight for petrol, which increased from 3.12 percent to 5.38 percent. Petrol prices were 56.9 percent higher in the June 2006 quarter than in the June 2002 quarter.
The passenger transport services subgroup has had a significant decrease in its weight, from 4.82 percent to 2.73 percent. The decrease is mainly due to a large fall in the weight for international air transport, which has fallen from 3.11 percent to 1.36 percent. The fall is partly due to HES expenditure on overseas package holiday and accommodation costs prepaid in New Zealand being allocated to international air transport in 2002, but to the package holidays class within the recreation and culture group in 2006. In addition, credit-card purchases made by New Zealand residents while overseas were included in the 2002 weight, but not in the 2006 weight.
Communication
The weight for communication has risen from 2.92 percent to 3.26 percent, mainly due to an increase in weight of telecommunication services (from 2.65 percent to 2.96 percent). Telecommunication services make up the majority of the weight of the communication group.
The weights for postal services and telecommunication equipment have remained at similar levels.
Recreation and culture
The recreation and culture group has had an increase in weight, from 9.73 percent to 10.21 percent.
The weight for recreational and cultural services has risen from 2.55 percent to 2.88 percent, driven by an increase in the weight for cultural services, which includes subscriber television.
The weight for package holidays has increased significantly, from 0.06 percent to 0.84 percent. The gain in weight is due to a change in the way overseas package holiday and accommodation costs prepaid in New Zealand was allocated to the CPI basket. In 2002, prepaid overseas package holidays were not directly included in the basket, and expenditure on them was allocated to international airfares.
Changes to the weights for the books class and the newspapers and magazines class reflect both changes to the way that expenditure on goods not directly included in the basket was allocated across those that are in the basket and to unintended double counting in 2002 for magazines.
Education
The education group is the lowest-weighted group in the CPI, with a weight of 2.08 percent (up from 1.65 percent).
The increase in weight is partly due to increases in expenditure recorded in the HES for primary and secondary education (although the associated sampling errors are relatively high) and partly due to improvements in 2006 to the way that HES expenditure was mapped to the education services in the CPI basket.
Miscellaneous goods and services
The weight for the miscellaneous goods and services group has fallen from 8.01 percent to 7.13 percent. The decrease is driven by a large fall in the weight for insurance (from 3.71 percent to 1.70 percent), which is mainly due to improvements in the method used to calculate the weights for the general insurance items.
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Appendix one
The 2004 RAC made 20 recommendations, as shown in the table. The first three are based on concepts with the remainder being based on methodology.
| RAC Recommendations | |
| Recommendation 1 | The Revision Advisory Committee recognises the wide ranging uses of the CPI, in terms of its application as a measure of inflation and as a measure of changes in the cost of living. The committee acknowledges that a single index cannot meet the needs of all users, but also recognises the value and importance of maintaining a "single" CPI. On balance, there should remain one index branded as the "CPI" and it should remain an acquisitions-based index measuring inflation in the goods and services purchased by New Zealand-resident private households. |
| Recommendation 2 | Statistics New Zealand should provide another index (or indexes) as separate series that would be more suited conceptually to measuring changes in households' cost of living. This additional index (or indexes) need not be published on as frequent a basis as the CPI, and an annual frequency would probably be sufficient to meet most users' requirements.
The precise methodology for producing a credible and robust cost of living measure would be left to Statistics New Zealand to explore. However, in producing an index, or a range of indexes, Statistics New Zealand should takeaccount of changes in the cost of living for different population subgroups such as superannuitants, wage and salary earners, low-income households, and recipients of government transfer payments. |
| Recommendation 3 | Statistics New Zealandshould not make changes to further enhance the CPI as a measure of inflation in the domestic economy (such as including expenditure in New Zealand by overseas tourists or removing local authority rates and similar non-market transactions) if such changes would result in the index being less suitable for measuring changes in the cost of living for New Zealand households. However, this decision could be reviewed at a time when Statistics New Zealand makes available a robust and credible cost of living index (or a range of cost of living indexes). |
| Recommendation 4 | Statistics New Zealand should produce a "tradables/non-tradables" analysis of the CPI as a quarterly analytical series, published at the same time as the CPI All Groups index. |
| Recommendation 5 | The Revision Advisory Committee endorses current Statistics New Zealand practices with respect to managing item substitution, new goods and new outlets, and notes that these practices are in line with ILO recommendations. |
| Recommendation 6 | Statistics New Zealand should continue with the current three-yearly re-weighting cycle. At this stage, there is no clear evidence that the benefits of more frequent re-weighting justify the additional cost. |
| Recommendation 7 | Statistics New Zealand should continue with current practices with respect to quality adjustment in the CPI and, in particular, the use of hedonic regression - but should take account of the limits of the application of this technique. |
| Recommendation 8 | Within its current resources, and subject to Recommenadtions 1 and 3, Statistics New Zealand should continue to update its index methodologies to improve the quality of the CPI, taking into account changes in the economy, changing user requirements, and changes in international standards of good practice. |
| Recommendation 9 | Statistics New Zealand should move to using the geometric means formula (also known as the Jevons formula) to calculate elementary aggregates for items that it deems are subject to outlet substitution. |
| Recommendation 10 | At each re-weighting of the CPI basket, Statistics New Zealand should calculate a superlative index on a retrospective basis to provide information on the effect of item substitution on the fixed-weight CPI. Consistent with Recommendation 8, Statistics New Zealand should also assess the value of providing users with real-time estimates of the effect of item substitution on the CPI. |
| Recommendation 11 | Statistics New Zealand should base the CPI classification system on the upper level structure of the Classification of Individual consumption According to Purpose (COICOP). Statistics New Zealand should have flexibility in the application of COICOP to the CPI, in line with the ILO recommendation that: "For the purposes of international comparisons, the classification should also be reconcilable with the most recent version of COICOP, at least at its divisional level. |
| Recommendation 12 | As part of the risk-management process, when changes to the CPI are introduced - such as the adoption of new classifications, Statistics New Zealand should produce a backcast series. Furthermore, Statistics New Zealand should backcast over as long a time period as practical, taking into account the minimum time period required for the principal uses of the index. |
| Recommendation 13 | Statistics New Zealand should undertake an integrated sample review of items,regions, field outlets and brands as part of the 2006 CPI revision. |
| Recommendation 14 | Statistics New Zealand should explore the possibility of moving from national expenditure weights to using regional expenditure weights for a number of broad regions, if the use of regional weights would improve the accuracy of the national CPI. The use of regional weights would have the added benefit of supporting the derivation of "fit-for-purpose" indexes for regions such as each of Auckland, Wellington, the rest of the North Island, Canterbury, and the rest of the South Island. |
| Recommendation 15 | Statistics New Zealand should consult with users in reviewing the number of regional centres from which prices are to be collected. |
| Recommendation 16 | The committee recognises that there are different regional data requirements. One such requirement is for an absolute price level measurement at a point in time, via "spatial" indexes, to measure differences in the cost of living in different regions. Regional spatial indexes would also complement the range of indexes designed to measure changes in the cost of living over time (Recommendation 2). Statistics New Zealand should seek funding to develop regional spatial indexes. Consistent with recommendation 2, it will not be necessary to publish such indexes more frequently than on an annual basis. |
| Recommendation 17 | Statistics New Zealand should adopt a consistent treatment of seasonality in the CPI and, in particular, all prices in the CPI All Groups index should be seasonally unadjusted. The committee recognises that the alternative of a fully seasonally adjusted index would require subsequent revisions, and that such revisions are unacceptable given the uses of the CPI. The committee also recognises there is likely to be some short-term disruption to annual movements during the year-long transition to a fully unadjusted CPI. |
| Recommendation 18 | Statistics New Zealand should consider producing a seasonally adjusted CPI All Groups index as an analytical series. However, the committee attaches a relatively low priority to the production of such as index. |
| Recommendation 19 | Statistics New Zealand should continue to produce the Food Price Index on a monthly cycle. To be consistent with the CPI All Groups index, all prices in the Food price Index should be seasonally unadjusted. |
| Recommendation 20 | At this point in time, given the balance of users' requirements and Statistics New Zealand's resource requirements, the production of a monthly CPI is a relatively low priority. |
Usage and Limitations of the Data ..The CPI is a measure of price change for households only, it should not be used or interpreted as an inflation measure for the economy as a whole.
Related Data Sources ..Directly: Food Price Index, indirectly: Producers Price Index, Labour Costs Index.
Sampling Errors ..Sampling error is a measure of the variability that occurs by chance because a statistically selected sample is surveyed rather than the entire population.
The CPI is based on a purposive sample of goods, services and outlets, not on a statistical sample. This means that judgement, rather than a statistical technique, was used to select the goods, services and outlets that are price surveyed. Due to the sampling methodology sample errors cannot be calculated.
Non-sampling errors Non-sampling errors in the survey data may result from respondent error, mistakes made during the processing of survey results, non-response imputation and quality change. Statistics NZ adopts procedures to detect and minimise these types of errors but they may still occur. They are not quantifiable. One of the major areas of concern in this area is elimination of quality change.
Caveats on Release ..Caution should be used in making comparisons which span rebase periods as there are likely to be changes in weighting of items and new items introduced at these times.
Customised Output
The database of prices allows Statistics NZ to calculate consumers price indexes for any set of expenditures i.e. specific indexes can be calculated for clients who are interested in their particular industry e.g. a rental index for use by a landlord.
Catalogue & Reference Numbers
Other Comments
Classification(s) used
Classifications |
Classification Versions |
Classification Type |
MB96 - Meshblock 1996 |
V1.0 |
NZ Standard |
Glossary of Terms
Acquisition approach
A conceptual base in which the expenditure weight for an item is based on the actual cost of a good or service acquired by households in the weighting base year, regardless of when the good is consumed or paid for.
The New Zealand CPI has been acquisition based since the 1974 revision.
Base period
The period at the beginning of the lifetime of a price index. The base period for the CPI is the June 1999 quarter.
Basket of goods and service
The selection of goods and services represented in the CPI. The basket of goods and services selected for the New Zealand CPI is essentially fixed, i.e. the goods and services are selected in the base year, and remain more or less constant for the life of the index.
Consumption approach (or economic cost of use)
A conceptual base in which the weight of a commodity is the amount of a good or service consumed in the base period, regardless of when it was acquired or when payment was made. When dealing with housing, there is a variant of this consumption approach referred to as rental equivalence.
Dutot elementary aggregate formula
One of the three commonly used elementary aggregate formulae. At the initial aggregation of prices for a particular item, prices are combined as the 'ratio of arithmetic mean prices' :
In practice, Statistics New Zealand uses a weighted arithmetic mean formula, with the weights, where available, representing the relative importance of outlet types such as supermarkets relative to convenience stores, and the relative importance of individual outlets (eg supermarket chains).
Elementary aggregate
The initial aggregation of prices for a particular item. There are three formulae commonly used to calculate elementary aggregates: Carli (arithmetic mean of price relatives); Dutot (relative of arithmetic mean prices); and Jevons (geometric means). Statistics NZ uses both the Dutot and Jevons formulae.
Expenditure weight
Each item included in the basket of goods and services making up the CPI regimen is weighted according to its relative importance. These weights are based on expenditure information collected by Statistics NZ.
Fixed weight price index (or base weighted index)
A price index in which the quantity of an item purchased is assumed to be constant or fixed at the base period for the life of the index. The CPI is a fixed weight index. The life of the CPI is three years, i.e. weights are revised every three years.
General measure of inflation
A measure of the prevailing level of price change in an economy. It is designed to measure the market prices for goods acquired at a point in time by all transactors in the economy.
Household Economic Survey (HES)
Previously called the Household Expenditure and Income survey (HEIS). An annual survey carried out by Statistics NZ which collects information on the spending patterns of private New Zealand households.
Index population (or reference population or target population)
The population covered by a price index. For the CPI, the index population is private resident households in New Zealand.
Inflation
An increase in the general or average level of prices of goods and services over a period of time.
Item substitution
The replacement of an item in the basket of goods and services when it is no longer available by another commodity.
Item weights
Estimates of the overall significance of each of the different items in the price index basket of goods and services.
Jevons elementary aggregate formula
One of the three commonly used elementary aggregate formulae. Use of the Jevons formula is recommended by the International Labour Office for goods and services where households are able to substitute towards outlets showing lower relative price change. At the initial aggregation of prices for a particular item, prices are combined as the 'geometric mean of price relatives':
In practice, Statistics New Zealand uses a weighted geometric mean formula, with the weights, where available, representing the relative importance of outlet types such as supermarkets relative to convenience stores and the relative importance of individual outlets (eg supermarket chains).
Laspeyres index
A price index measuring the changing cost over time of purchasing the same basket of commodities purchased in some historical period (the base period).
The Laspeyres index formula is given by:
Where Pit = Price of item i (i = 1,.....,m) in period t
Pio = Price of item i (i = 1,.....,m) in the base period
Qio = Quantity of item i purchased in the base period
An alternative Laspeyres index formula, used by Statistics NZ in the calculation of the FPI is given by the formula:
Where Pit = Price of item i (i = 1,.....,m) in period t
Pio = Price of item i (i = 1,.....,m) in the base period
Eio = Expenditure on item i purchased in the base period
= PioQio
National price
The average price of a good or service which is not aggregated up from regional prices.
e.g. motor vehicle registration is the same price nation-wide, i.e. it is a national price.
Non-representative expenditure
Expenditure not represented in the CPI. This exclusion may be for conceptual reasons, or for practical reasons.
Non-response
Non-response results when a respondent or group of respondents fails to provide information when contacted by the survey.
Non-sampling errors
Any error not resulting from the collection of information from a sample, rather than the whole population. The main non-sampling errors of interest to the reliability of the CPI are undercoverage; non-represented consumption; non-response and the practical limitations of collecting certain data.
Notional transaction
An estimate of a real transaction, not based on direct measurement.
Outlet
An individual, organisation or business enterprise from which goods or services may be purchased by householders and which can be price-surveyed.
Outlet sample
The outlets selected for purposive sampling.
Outlet type
A group of outlets which, for pricing purposes, is regarded as relatively homogeneous.
Outlet weights (or storetype weights)
A measure of importance (or weight) given to a particular type of shop (outlet) based on national expenditure patterns.
For example, many consumers tend to buy dairy products from supermarkets rather than other outlet types, hence a supermarket will have a higher outlet weight for cheese than a dairy.
Outlet weights are applied to food and non-food groceries in the CPI.
Policy Targets Agreement
An agreement signed by the Reserve Bank and the Minister of Finance requiring the Reserve Bank to achieve and maintain price stability.
Population weighting
A measure of importance a particular CPI region based on the population of that region compared to the overall population. Population weights are used when combining regional information.
Price change measure
A measure of the changes in the prices of a set of items. This set of items could be all household expenditure as in the case of the CPI All Groups, or of a set of distinct transactions such as telecommunication charges.
Pricing centre
One of the 15 urban areas from which prices are collected for the calculation of the CPI.
Price deflators
Factors that, when applied to a related time series of values allows a valid comparison of the true underlying change free from the influence of price movements.
Price index
A numerical index indicating how a set of prices has changed between time periods.
Quality change
Any perceived difference in quality by the consumer for a good or service.
Reference population
See Index population.
Regimen
The selection of goods and services for which prices are surveyed for the purpose of compiling a price index. The goods and services covered by the CPI are classified into eleven groups, 44 subgroups, 105 classes, 176 sections and 215 subsections, 487 items covering over 685 subitems.
Sample frame
A comprehensive list of all existing outlets (shops) from which a statistical sample can be selected.
Sampling error
Any error resulting from the collection of information from a sample, rather than the whole population.
Seasonal adjustment
Statistical technique to remove the seasonal pattern from prices or from the resultant price index so that the series is free from fluctuations due to seasonality. There are two methods of seasonal adjustment - concurrent seasonal adjustment and forward factors.
Seasonal commodity
A good or service with seasonal fluctuations in the quantity purchased throughout the year. These commodities may also, but not necessarily, have seasonal fluctuations in their price during the year.
Seasonal fluctuations (of a series)
Regular fluctuations that occur with the same magnitude at the same time every year.
Storetype weights
See Outlet weights.
Superannuitants Price Index (SPI)
An index measuring price movements for goods and services for superannuitant households.
Target population
The population which a survey aims to represent (i.e. resident private households in New Zealand).
Theoretical index bias
The cumulative difference, in one direction, between the actual level of price change experienced by consumers and the published FPI result, due to the construction of the price index. There are five types of theoretical bias: commodity substitution bias; outlet substitution bias; new goods bias; elementary index bias; and quality adjustment bias.
Trend (of a series)
The steady underlying long-term movement and shorter term movements in a series.
Under-coverage
A form of error which occurs when the sample frame from which a survey is selected does not completely cover the population of interest.
Contact Details
Liability
Statistics New Zealand gives no warranty that the information or data supplied contains no errors. However, all care and diligence has been used in processing, analysing and extracting the information. Statistics New Zealand shall not be liable for any loss or damage suffered by the customer consequent upon the use directly, or indirectly, of the information supplied in this product.
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