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| Information about the Capital Goods Price Index |
Availability
| Valid From: .. | 12/01/1999 |
| To: .. | Ongoing |
| Frequency: .. | Quarterly |
Design
Purpose: To provide a series of comprehensive indexes to measure the movements in the average levels of prices of fixed capital assets within the New Zealand economy, and to complement existing series such as the Consumers Price Index (CPI), the Producers Price Index (PPI) and the Labour Cost Index (LCI).
General Information ..1. Interpretation
A price index measures the change in prices between time periods, not the actual level of prices. A price index does not measure the cost of living or production, the value of production, or any other facet where factors other than price are allowed to vary (such as quantity).
A price index measures price changes for a fixed set of goods and services. For any set of goods and services, a representative subset (a "basket") is selected for pricing. This subset is a sample of the total population of prices, and is intended to represent price changes for the complete set of goods and services being studied.
A price index is conventionally expressed to a base of 1000 in a particular time period, such as a month or quarter, which is referred to as the base period. An index is “based” in one particular time period when the regimen weights and base prices were derived. This weighting base may not necessarily be the expression base (the expression base is when the index has a value of 1000).
Price indexes are 'unitless'. This means that the significance of a series of index numbers lies in their relative values. A single index number has no information value. In order for an index to provide information on price change, at least two index numbers from the same series are required to derive the change in price. The index numbers must relate to the same basket of goods and services and to the same expression base period to give a meaningful result.
2. Expenditure coverage of CGPI
Capital Goods Price Index (All Groups)
Residential Buildings
Dwellings and outbuildings
Hostels, boarding houses
Non Residential Buildings
Shops and offices
Warehouses, factories
Farm buildings
Other non-residential buildings
Other Construction
Transport ways
Pipelines
Electrical works
Earthmoving & site work
Land Improvements
Land clearing & establishment
Fencing
Irrigation & land drainage
Reclamation & river control
Transport Equipment
Cars 1,600cc and under
Cars over 1,600cc
Commercial vehicles 3,500Kg and under
Commercial vehicles over 3,500Kg
Buses
Trailers
Motor cycles
Helicopters
Plant Machinery and Equipment
Glass and glass products
Furniture
Other manufactured articles
Structural metal products
Metal tanks reservoirs and containers
Steam generators
Other fabricated metal products
Engines and turbines
Pumping and compressing equipment
Ovens and furnace burners
Lifting and handling equipment
Other general purpose machinery
Agricultural and forestry equipment
Machine-tools
Machinery for mining, quarrying and construction
Machinery for food, beverage and tobacco processing
Machinery for textile, apparel and leather production
Domestic appliances
Other special purpose machinery
Office and accounting machinery
Computer machinery
Electric motors, generators and transformers
Electricity distribution and control apparatus
Insulated wire and cable; optical fibre cables
Other electrical equipment
Television and radio transmitters and apparatus
Medical and surgical equipment
Measuring, testing and navigating instruments
Optical instruments and photographic equipment
Bodies for motor vehicles and trailers
Other plant, machinery and equipment
 Index Regimen
3. Choosing items to be price surveyed
The price surveys of capital items for the CGPI cannot possibly cover all the items purchased by producers.
However, it is not necessary to survey the prices of all capital items that the producers purchase, as many related items are subject to similar price movements. The solution is to survey the prices of a selection of goods and services, which will represent the price movements of the much wider range of items that businesses purchase. The factors, which are to be taken into account when selecting items to be price surveyed, are the selected capital items should:
- be representative of the capital items purchased by businesses;
- have a price history;
- have price movements that accurately reflect those of a broad grouping of similar products; and
- have a high probability of being available for a number of years; this reduces the frequency and subsequent difficulties encountered when items have to be replaced.
4. How Prices are collected for CGPI -
The prices used in the Capital Goods Price Index are collected by the Commodity Price Survey, which is a postal survey of about 3,000 respondents. Prices are generally collected each quarter and measure the price at the 15th of the middle month of the quarter.
The survey design is a purposive sample of outlets and items. Some prices used in the Capital Goods Price Index are obtained from various other publications. Most of the 'outlets' used within the Capital Goods Price Index are either manufacturers or wholesalers (eg cars). Some retailers also provide prices.
5. Exclusions
Some items of Capital Equipment are excluded from the Capital Goods Price Index. These are:
- Large value items that are non-recurring and / or manufactured to customised specifications (e.g. Air-craft and Ships). These have been excluded as comparable prices for every period are difficult to obtain.
- Second hand equipment is also excluded from the index.
6. Quality
Price indexes are primarily comparisons of prices. Every attempt is made to exclude price change that is due to changes in quality of a commodity. With quality changes excluded, the price changes should be 'pure' or 'real'. Quality adjustment is a method of adjusting the price so the price change is pure.
Techniques are available to make the appropriate price adjustment. The most common method is to find a time period when both the variants of the items are available and to use the difference in their prices as a measure of the value of the quality differences between them. Another common approach is to ascertain the cost to the purchaser of the additional features. For example, it may be possible to establish that power steering added $850 to the cost of a new model car. This value is subtracted from the price of the latest model to get the price of an equivalent earlier model, without power steering. The price of the equivalent earlier model, without power steering, is then comparable with the price recorded previously.
7. Mathematical formula used
The General Form of the Laspeyres formula is:-
Where L01 = Laspeyres Price Index
p0,p1 = Prices in periods 0 and 1 respectively
q0 = quality in period 0
This is known as the “Expenditure Aggregative” Form. The Laspeyres Index is also expressed in a second form, called the “Weighted Price Relatives”. The derivation is given below
Where
and
Then
Let w = p0q0, then
and if  = 1000 then
where  = “price relative”
w = “Weight” i.e. the expenditure in the base period.
 PV/CP/01 - Commodity Price Survey
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 following are the group and sub-group indexes. The indexes underlined are further subdivided by
those immediately following.
All Groups
Residential Buildings
Dwellings and outbuildings
Hostels, boarding houses
Non-residential Buildings
Shops and offices
Warehouses, factories
Farm buildings
Other non-residential buildings
Other Construction
Transport ways
Pipelines
Electrical works
Earthmoving & site work
Land Improvements
Land clearing & establishment
Fencing
Irrigation & land drainage
Reclamation & river control
Transport Equipment
Cars 1,600cc and under
Cars over 1,600cc
Commercial vehicles 3,500Kg and under
Commercial vehicles over 3,500Kg
Buses
Trailers
Motor cycles
Helicopters
Plant Machinery and Equipment
Glass and glass products
Furniture
Other manufactured articles
Structural metal products
Metal tanks reservoirs and containers
Steam generators
Other fabricated metal products
Engines and turbines
Pumping and compressing equipment
Ovens and furnace burners
Lifting and handling equipment
Other general purpose machinery
Agricultural and forestry equipment
Machine-tools
Machinery for mining, quarrying and construction
Machinery for food, beverage and tobacco processing
Machinery for textile, apparel and leather production
Domestic appliances
Other special purpose machinery
Office and accounting machinery
Computer machinery
Electric motors, generators and transformers
Electricity distribution and control apparatus
Insulated wire and cable; optical fibre cables
Accumulators, primary cells and primary batteries
Other electrical equipment
Television and radio transmitters and apparatus
Medical and surgical equipment
Measuring, testing and navigating instruments
Optical instruments and photographic equipment
Bodies for motor vehicles and trailers
Other plant machinery and equipment
Changes in Output Variables over time
Guide to Interpreting Data
Summary of Changes to Survey/Output ..History of the Capital Goods Price Index
The development of the CGPI took over six years. It began in 1975 with the first investigations into inflation accounting and grew to include deflation of capital in the National Accounts.
June 1975
The report of the Inflation Accounting Committee in Great Britain produced the Sandilands Report, which formed the basis of inflation accounting in the UK and the basis for investigation into New Zealand's inflation accounting.
June 1976
Discussions commenced in the Department of Statistics in anticipation of producing a Capital Goods Index.
July 1976
Waikato University's Inflation Accounting Research Project published a manual on current cost accounting.
September 1976
The New Zealand Committee of Inquiry into Inflation Accounting published the Richardson Report, setting out the best methods of applying inflation accounting practices in the New Zealand economy.
March 1977
The Department of Statistics prepared a technical report on indexes for current cost accounting.
June 1977
The Minister of Statistics requested that the Department of Statistics study the feasibility of commencing a Capital Goods Index.
July 1977
The Minister of Statistics approved the employment of two economists to work on the Capital Goods Index.
May 1979
Work began on the Capital Goods Price Index. Investigations involved finding item categories and asset classes for pricing.
November 1979
Ministerial approval was granted to start a pricing survey to find items and pricing sources.
February 1980
The first full post-out for the main pricing survey was conducted, which asked for prices from 15 November 1979 and from 15 February 1980.
March 1980
Work commenced on the weighting pattern for the Capital Goods Price Index.
August 1980
Non-residential buildings indexes were completed and used with the Producers Price Index outputs of construction.
May 1981
Publication of the first Information Release of the Capital Goods Price Index.
1986-1988 Review
A comprehensive revision of the asset-type indexes was undertaken.
Some indexes were discontinued, these were:
- Fishing Boats
- Light Fixed Wing Aircraft
- Office and Shop Equipment Non-electronic
- Tanks, Vats, and Storage Units
- Medical, Dental, Hospital Furniture & Equipment
- Peripheral Data processing units
- Sport and Recreation Equipment
In December 1989, the asset type indexes were introduced. The following asset type indexes were discontinued.
- Hospitals, Rest Homes
- Education Buildings
- Motels, Hotels
- Social, Cultural Recreational Buildings
- Miscellaneous Buildings
Redevelopment in September 1999
The Capital Goods Price Index redevelopment in September 1999 showed no significant changes in residential buildings, non-residential buildings, other construction, land improvements, and transport equipment.
Plant, machinery and equipment did show changes in the regimens. The changes were made to comply with the System of National Accounts SNA93 classifications. As a result, 32 indexes were created, these were:
Glass and glass products
Furniture
Other manufactured articles
Structural metal products
Metal tanks reservoirs and containers
Steam generators
Other fabricated metal products
Engines and turbines
Pumping and compressing equipment
Ovens and furnace burners
Lifting and handling equipment
Other general purpose machinery
Agricultural and forestry equipment
Machine-tools
Machinery for mining, quarrying and construction
Machinery for food, beverage and tobacco processing
Machinery for textile, apparel and leather production
Domestic appliances
Other special purpose machinery
Office and accounting machinery
Computer machinery
Electric motors, generators and transformers
Electricity distribution and control apparatus
Insulated wire and cable; optical fibre cables
Accumulators, primary cells and primary batteries
Other electrical equipment
Television and radio transmitters and apparatus
Medical and surgical equipment
Measuring, testing and navigating instruments
Optical instruments and photographic equipment
Bodies for motor vehicles and trailers
Other plant machinery and equipment
Usage and Limitations of the Data ..The Capital Goods Price Index has many uses. It can be used as a measure of price stability like the Consumer Price Index and Producers Price Index. The Asset type indexes can be used in cost escalation clauses for that type of asset. The Capital Goods Price Index can also be used for inflation accounting and in replacement value insurance policies.
Laspeyres Bias
Laspeyres Bias refers to the bias in the index, which arises because it is assumed that quantities purchased remain constant. If prices for capital equipment increase, firms tend to substitute away from the expensive capital items to less expensive items.
Quality Bias
Quality Bias is most severe for goods that undergo most rapid improvements in quality. These tend to be items with a high technological content such as, cars, computers and other business equipment. In some cases various techniques are used to isolate the quality change (see quality control above).
Non-response bias
The indexes are based on prices collected from respondents. Where there is a non response for a particular period a price is imputed by 'carrying forward' the last response. This means the index does not show a change in price for that particular price surveyed item. Should a respondent not respond for several periods a bias may occur towards no change.
Incorrect Survey data
Sometimes data received by Statistics NZ may be incorrect. Although Statistics NZ have an extensive procedure for checking data, occasionally a price obtained may be incorrect. Usually this error is very small (less than an index point).
Related Data Sources ..Producers Price Index
Consumers Price Index
Quarterly Building Activity Survey
Labour Cost Index
Sampling Errors ..n/a
Non-sampling errors Non-sampling errors in the survey data may result from errors in the sample frame, respondent error, mistakes made during processing survey results and non-response imputation. Statistics New Zealand adopts procedures to detect and minimise these types of errors but they may still occur and they are not quantifiable.
Caveats on Release ..The non-residential buildings indexes do not purport to reflect all price change in building work because of measurement difficulties, particularly with respect to discounts on labour and material prices.
Customised Output
Catalogue & Reference Numbers
1 Capital Goods Price Index.
2 Capital Goods Price Index, percentage from previous quarter.
Other Comments
Classification(s) used
Glossary of Terms
| Term | Description |
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| All Groups Index | The index series showing price movements for the weighted combination of all goods and services priced for the CGPI. |
| Asset Type Index | A breakdown of the group, at the lowest published level. |
| Basket | The set of goods and services specified in terms of item and quantity, whose prices are surveyed for the purpose of compiling the CGPI. |
| Capital Goods | Capital Goods are goods produced as outputs from processes of production that are themselves used repeatedly or continuously in other processes of production for more than one year. These are also referred to as fixed assets.
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| Commodity | A good or service commonly referred to as an item. |
Expression Base
GIFT | The period in which the expenditure required to purchase the goods and services selected in the index, is equated to the index base (commonly 1000). The expression base is sometimes referred to as the reference base.
Generalised Index Facility Toolbox. The index calculation system currently used by Statistics New Zealand. |
| Group | The first level of breakdown of the CGPI. At present, the CGPI comprises of six asset groups. |
| Index Number | The ratio of current expenditure to base expenditure multiplied by 1000. |
| Index Number Series | A series of numbers measuring movement over time from a base period value. The base period value is normally represented by an index number of 1000.
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| Indexation | The periodic adjustment of a money value (e.g. wages, construction costs, rents) according to changes in a selected price index. |
| Item | Items are the goods or services that the commodity price survey is pricing. Each item has an 8 digit code. This code is referred to as the component number. The component number is used to find the item on GIFT. |
| Laspeyres Price Index | An index formula which measures the changing cost over time of purchasing the same selection of goods and services purchased in some prior period. Most indexes calculated by Statistics NZ use the Laspeyres Price Index formula. |
| Linking (of Index Series) | The technique used to join a new index series (e.g. one having a changed composition and weighting pattern) to an old index series to form one continuous series. The technique should ensure that the resultant linked index reflects only price level variation. |
| Outlet | Source of a price quote. Each source has it own outlet code, which is a number from 1 to 5,000. |
| Percentage Change | The change in an index series from one period to another expressed as a percentage of its value in the first of the two periods. |
| Pure Price Change | The change in the price of a good or a service, after removing any variation in price attributable to a change in quality or quantity. |
| Quality Adjustment | The elimination of the effect that changes in the quantity or composition of an item have on the price of the item, in order to isolate the pure price change. |
| Rebase | To change the expression base period of an index series, which is done when an index revision takes place. |
| Regimen | The selection of goods and services whose prices are surveyed for the purpose of compiling a price index. This specifies the goods and services which are price surveyed and their relative expenditure weights. |
| Weight | The measure of the relative importance of an item in the index regimen. |
| Weighting Base | The period for which expenditures on capital goods by businesses were surveyed to form the regimen of the index. |
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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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