Consumers Price Index December 2004 quarter

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Commentary ...

• Consumers Price Index quarterly movement

The Consumers Price Index (CPI) recorded a 0.9 percent increase in the December 2004 quarter. This follows increases of 0.6 percent and 0.8 percent in the September and June quarters, respectively. This is the largest quarterly increase since the June 2002 quarter which had a 1.0 percent increase.

Of the nine groups in the CPI, eight recorded increases in the December 2004 quarter. The most significant upward contributions to the CPI came from the transportation and housing groups. Less significant upward contributions came from the household operation, food, recreation and education, personal and health care, apparel, and tobacco and alcohol groups. The downward contribution came from the credit services group.

The most significant upward contributions to the movement in the CPI came from price increases for international air travel (up 10.1 percent), purchase and construction of new dwellings (up 1.7 percent), and electricity (up 4.1 percent). The most significant downward contributions came from lower prices for fresh vegetables (down 4.8 percent) and petrol (down 0.6 percent).

• Index points contribution

Group	September 2004 quarter to December 2004 quarter
Transportation Housing Household operation Food Recreation and education Personal and health care Apparel Tobacco and alcohol Credit services	3.29 2.62 1.75 1.12 0.79 0.38 0.28 0.22 -0.30
All Groups CPI	10.15

• Distribution of item-level movements

The table below outlines the distribution of price movements in the September 2004 and December 2004 quarters. The CPI has been partitioned into those national item-level indexes that increased, showed no change, or decreased.

National Item-level Index Movements	June 2004 quarter to September 2004 quarter	September 2004 quarter to December 2004 quarter
Increase in price Number of items Percentage of all items Percentage of expenditure weight Index points contribution Weighted average price increase (percent)	316 47.0 68.5 13.8 1.8	352 52.4 65.0 15.8 2.1
No change in price Number of items Percentage of all items Percentage of expenditure weight	123 18.3 8.7	89 13.2 7.2
Decrease in price Number of items Percentage of all items Percentage of expenditure weight Index points contribution Weighted average price decrease (percent)	233 34.7 22.8 -6.8 2.6	231 34.4 27.8 -5.6 1.8

The distribution of item-level movements shows that:

• In the December 2004 quarter, the expenditure weight of items that increased in price was significantly greater than the expenditure weight of items that decreased in price.
• In the December quarter, the expenditure weight of items that had increased in price fell from the September quarter, while the expenditure weight of items that decreased in price rose.
• From the September quarter to the December quarter, the weighted average price increase rose and the weighted average price decrease fell.

This has resulted in the CPI moving from a 0.6 percent increase in the September quarter to a 0.9 percent increase in the December quarter.

• CPI annual movement

The CPI rose 2.7 percent from the December 2003 quarter to the December 2004 quarter. This follows rises of 2.5 percent in the year to September 2004 and 2.4 percent in the year to June 2004.

Of the nine groups in the CPI, seven recorded annual increases from the December 2003 quarter. The most significant upward contributions came from the housing group (up 5.6 percent) and the transportation group (up 3.3 percent). Less significant upward contributions came from the tobacco and alcohol, personal and health care, household operation, food, and recreation and education groups. Downward contributions came from the credit services and apparel groups.

The annual increase in the CPI was strongly influenced by price increases in the purchase and construction of new dwellings (up 7.3 percent) and petrol (up 13.5 percent). Significant annual decreases came from used cars (down 4.3 percent), household appliances and equipment (down 5.9 percent), and fruit and vegetables (down 2.9 percent).

• CPI all groups tradable and non-tradable component series

An information paper outlining the methodology for producing the CPI tradable and non-tradable component series was released on 13 December 2004. The information paper outlines the adopted methodology, the final classification of CPI subsections into tradable and non-tradable components, and historical series from the June 1999 quarter to the September 2004 quarter.

From the December 2004 quarter onwards, the tradable and non-tradable series will be published with the CPI all groups in Tables 3.01, 3.02 and 3.03. This follows Recommendation 4 of the 2004 CPI Revision Advisory Committee that "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". A tradable and non-tradable series was previously published by the Reserve Bank: Consumers Price Index Tradable and Non-tradable Series - Information Paper.

In the December 2004 quarter, the non-tradable component (up 1.1 percent) made the largest contribution to the CPI all groups movement. This follows a 1.0 percent increase in the September quarter. The tradable component increased 0.7 percent in the December quarter, following no recorded change in the September quarter.

From the December 2003 quarter to the December 2004 quarter, the non-tradable component increased 4.3 percent and the tradable component increased 0.7 percent.

• Transportation

The transportation group increased 1.8 percent in the December 2004 quarter, following a rise of 0.5 percent in the September 2004 quarter.

The most significant upward contribution to the transportation group came from international air travel (up 10.1 percent), mainly due to rising fuel surcharges and higher fares during the peak season. International air travel also made the most significant upward contribution to the current quarter's all groups CPI. If international air travel had not changed from the September quarter, then the CPI would have increased only 0.6 percent.

The most significant downward contributions to the transportation group came from lower prices for petrol (down 0.6 percent) and new cars (down 1.5 percent).

The transportation group rose 3.3 percent from the December 2003 quarter to the December 2004 quarter, mainly driven by higher prices for petrol (up 13.5 percent).

• Housing

The housing group increased 1.1 percent in the December 2004 quarter, following increases of 1.6 percent and 1.4 percent in the September and June quarters, respectively. It is the first time in 10 quarters that housing has not made the most significant upward contribution to the CPI.

Prices for the purchase and construction of new dwellings increased 1.7 percent in the December 2004 quarter, following increases of 1.9 percent in each of the September and June quarters. Construction prices have increased for 23 consecutive quarters. In the December quarter, 52 percent of surveyed construction prices rose, compared with 56 percent in the September quarter. Respondents are asked to indicate one or more reasons for any reported change in their construction prices. Of respondents reporting increases in the December quarter, 88 percent cited higher prices for construction components, 75 percent cited increased subcontractors' charges, 74 percent cited rising labour costs and 67 percent cited rises in the cost of fittings. If prices for the purchase and construction of new dwellings had not changed from the September quarter, then the CPI would have increased 0.7 percent.

From the December 2003 quarter to the December 2004 quarter, housing prices increased 5.6 percent. The most significant contributions came from higher construction prices (up 7.3 percent), rents (up 2.8 percent), real estate agent fees (up 15.4 percent) and local authority rates (up 3.9 percent).

• Household operation

The household operation group increased 1.0 percent in the December 2004 quarter, following an increase of 0.1 percent in the September 2004 quarter.

The most significant upward contribution to the household operation group in the December quarter came from an increase in electricity prices (up 4.1 percent). This follows electricity price rises of 1.4 percent in the September quarter and 2.8 percent in the June quarter. Electricity prices have increased in each of the last 12 quarters and are 8.8 percent higher than in the December 2003 quarter.

From the December 2003 quarter to the December 2004 quarter, the household operation group rose 1.4 percent.

• Food

The food group increased 0.6 percent in the December 2004 quarter. This follows a decrease of 0.2 percent in the September quarter and an increase of 0.4 percent in the June quarter.

The most significant upward contribution to the food group in the December 2004 quarter came from higher prices for beef (up 7.3 percent), while lower prices for fresh vegetables (down 4.8 percent) made the most significant downward contribution.

The food group increased 1.2 percent from the December 2003 quarter to the December 2004 quarter. The main upward contributions came from dairy products (up 5.2 percent) and ready-to-eat foods (up 3.6 percent). The main downward contribution came from fresh fruit (down 10.2 percent).

• Other groups

Less significant increases in the December 2004 quarter were recorded for recreation and education (up 0.8 percent), personal and health care (up 0.3 percent), apparel (up 0.6 percent), and tobacco and alcohol (up 0.2 percent). The credit services group recorded a decrease of 4.7 percent.

Together, these groups contributed 1.37 index points to the CPI. The most significant upward contributions within these groups came from medical and health services (up 0.7 percent), hotel and motel accommodation (up 4.8 percent), and cigarettes (up 1.1 percent). Cigarette and tobacco prices were subject to the annual increase in excise duties, effective from 1 December 2004.


For technical information contact:
Hugh Dixon or Michael Smedes
Wellington 04 931 4600
Email: hugh.dixon@stats.govt.nz