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Price Index News: April 2007

1. Short stories

How petrol prices have tracked since the 1980s

Petrol prices rose to more than $1.75 per litre during the September 2006 quarter. This compares with retail pump prices of less than 60 cents per litre 25 years earlier in 1981. It is interesting to note, however, that petrol prices have not increased as strongly as consumer prices overall since 1981. How petrol prices have tracked since the 1980s takes a look at how petrol prices and the overall Consumers Price Index (CPI) have tracked since 1981, when the CPI petrol index started.

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2. Making contact

In future issues of Price Index News, we will use Making Contact to let you know about:

  • plans to consult users of price index statistics
  • the availability of consultation papers
  • how users of price index statistics can participate in the consultation process
  • resulting decisions made after users have been consulted.

If you would like to discuss any aspect of price index statistics, we would like to hear from you. Contact names appear at the end of the commentary of each price index Hot Off The Press information release. In addition, you are welcome to contact:

John Morris (Manager – Prices)
Daria Kwon (Acting project manager – Business, Labour and Overseas Trade Price Index outputs)
Patricia Jennings (Project manager – Business Price Index development)
Daniel Griffiths (Project manager – Consumers Price Index outputs)
Chris Pike (Project manager – Consumers Price Index/Labour Cost Index development).

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

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3. Working with others

Statistics New Zealand's International Assistance Programme

In early 2006, statisticians from Fiji, Solomon Islands, Tuvalu and Cook Islands spent four weeks in Wellington on attachment to Statistics New Zealand, as part of Statistics NZ's International Assistance Programme. Their time was spent learning how to undertake a consumer price index (CPI) rebase, which involves reviewing the selection and relative importance of goods and services in the basket. Statistics New Zealand's International Assistance Programme looks at the visit and a follow-up trip to the Cook Islands by a Statistics NZ analyst to assist with the Cook Islands' CPI rebase.

Prices bilateral meeting with the Australian Bureau of Statistics

Prices manager John Morris and seven project managers and statistical analysts from Statistics NZ's Prices business unit and Macro-Economic Statistics Development business unit travelled to Canberra in November last year for a two-day bilateral meeting with their Prices colleagues at the Australian Bureau of Statistics.

The bilateral discussion, the first for two years, provided an opportunity to reflect on recent developments, such as the recently implemented New Zealand Consumers Price Index review, and to discuss progress on current projects and possible future initiatives. The meetings were characterised by a free and frank sharing of knowledge, experiences and insights in to the many measurement challenges both organisations face. The bilateral has helped to foster ongoing contact and collaboration between the two Prices units.

International service statistics events

As the service sector increases in size and economic importance, so does the importance of accurately measuring its output in constant dollars. Statistics New Zealand participated in two key International service statistics events in October 2006. These were the twenty-first meeting of the Voorburg Group on Services Statistics, held in Germany; and a workshop on the practices and implementation of service producer price indexes, held in Luxembourg. This article looks at both events. 

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4. Virtual papers

Contract indexation

Statistics New Zealand’s price indexes are widely used by New Zealand businesses in commercial contract 'indexation clauses' (also known as cost escalation clauses). Price indexes are also used to maintain the value of rental, insurance or cost-of-living payments over time as general price levels change.

Statistics NZ's Contract Indexation Guide for Business provides information on the price indexes produced by Statistics NZ and issues relating to their use in contract indexation clauses. The guide also outlines some points to consider when preparing an indexation clause and includes an example of the mechanics of a simple indexation formula.

New goods in the CPI

The appearance of new goods and services in the marketplace presents a challenge for the compilers of a consumer price index (CPI). The New Zealand CPI uses a fixed basket approach, so new goods are generally added only when the basket is reviewed and reweighted. For example, as part of the 2006 review of the CPI, goods added to the basket included MP3 players, DVD players/recorders and flat panel televisions.

The CPI is subject to a form of potential measurement bias called ‘new goods bias’. The longer it takes to add new goods to the basket, the larger the potential bias.

Statistics NZ presented a research paper on this issue at the 2006 New Zealand Association of Economists conference held in Wellington. The paper, New Goods and the Consumers Price Index (CPI), summarises the concept of new goods bias and describes the treatment of new goods in the CPI. The paper also presents an empirical analysis of the potential impact on the index of:

  • when new consumer electronic goods are added to the CPI basket
  • the expenditure weights assigned to these goods.

The goods examined are digital cameras, DVD players/recorders and flat panel televisions.

CPI retrospective superlative index and alternative housing weights

The Consumers Price Index (CPI) Revision Advisory Committee met in June 2004 to undertake an independent review of the practices and methods used to compile the CPI. One of the committee's recommendations was that at each reweighting of the CPI basket, Statistics NZ should calculate a 'superlative' index on a retrospective basis to provide information on the effect of upper-level (or item) 'substitution' on the fixed-weight CPI.

A paper, Consumers Price Index: Retrospective Superlative Index and Impact of Alternative Housing Weights, was released recently. This paper presents details of a retrospective superlative index calculated between the June 2002 quarter and the June 2006 quarter. The index provides an indication of the effect of commodity substitution on the fixed-weight CPI. It also reflects changes and improvements in the methods and data sources used to derive the 2006 expenditure weights.

The paper also presents details of how the CPI would have tracked between the June 2002 quarter and the June 2006 quarter, if alternative weights had been used for the purchase of new housing and for rentals for housing.

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5. Nuts and bolts

Consumers Price Index retail outlet sample review

The sample of retail outlets from which prices are collected was reselected as part of the 2006 Consumers Price Index (CPI) review. The sample of 15 pricing centres remained unchanged. However, price collection effort was redistributed to align more closely with the population shares of the regions. This resulted in more prices being collected in the larger pricing centres, particularly Auckland. The objective of this reallocation was to optimise the accuracy of the national CPI, while taking into account a secondary requirement to produce indexes of good quality for five broad regions.

More than 800 new retail outlets were added to the sample as part of the review. The Consumers Price Index retail outlet sample review looks at how the new outlets are distributed across the regional pricing centres. The article also provides information about how the tens of thousands of price quotes collected from retail outlets are distributed across the pricing centres now that the review has been implemented.

How electricity price changes are measured in the CPI

Electricity had an expenditure weight of 3.29 percent of the Consumers Price Index (CPI) as at the June 2006 quarter, making it one of the more highly weighted goods and services in the basket. The process to calculate the electricity index is explained in How electricity price changes are measured in the CPI.

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6. On the horizon

Fuel discount schemes

Fuel discount schemes related to spending at supermarkets and in-store at petrol stations were incorporated into the Consumers Price Index (CPI) for the first time in the December 2006 quarter. Some of these schemes started part way through the December quarter. As prices for petrol are collected weekly (and aggregated to monthly, and then quarterly, average prices) the full impact of these discounts will be shown in the March 2007 quarter.

Education fees

The CPI shows changes in tertiary education fees and changes in school fees, donations and uniform prices in the March quarter of each year.

Excise duty increase for cigarettes and tobacco

The excise duty on cigarettes and tobacco increased by 3.538 percent on 1 December 2006. As prices are collected monthly, approximately one-third of the impact on retail prices was shown in the December quarter CPI and two-thirds will be shown in the March 2007 quarter. However, the timing of price increases in stores and price collection by Statistics New Zealand staff also had a small impact on the amount of the increase in excise recorded in the December 2006 quarter.

International travel to the Pacific

The second half of 2006 saw unrest in the Pacific, with events in Tonga, Fiji and the Solomon Islands likely to have had an impact on the prices paid by and number of New Zealand residents travelling to the Pacific. Provisional international travel statistics for weekly New Zealand resident departures are used by Statistics NZ to monitor the numbers of New Zealanders travelling to different destinations to ensure that the destinations in the CPI international travel sample remain representative. For example, departure numbers for travel to Fiji, the main Pacific destination for New Zealand travellers, were lower during November and December 2006 than for the previous two years, influenced by unrest in late 2006. However, departure numbers for February 2007 were broadly in line with those for the previous two years.

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7. Development updates

Redeveloping the business price indexes

Statistics New Zealand is progressively redeveloping a suite of business price indexes comprising the Producers Price Index (PPI), the Farm Expenses Price Index (FEPI) and the Capital Goods Price Index (CGPI).

The initial focus is on redeveloping the PPI, which measures price changes in the production sector of the economy and is used primarily to support the compilation of the national accounts. There are two types of PPI indexes. The 'output' indexes measure changes in prices received by producers, while the 'input' indexes measure price changes in the costs of production faced by producers (excluding labour and capital costs).

The redevelopment involves reviewing the items that are priced within the indexes and updating the relative weights that are applied to the items. This work began in 2004 and is expected to be completed in 2009. At this stage, the redevelopment applies only to the output indexes. The redeveloped input indexes will be finalised once all the output indexes have been completed.

To date, the redevelopment process for the majority of manufacturing industries has been completed and implemented. The redevelopment process for the primary industries agriculture and mining is currently underway and scheduled for completion by mid-2007. The project is now shifting focus to service industries such as finance and insurance. Current redevelopment provides further information about the project and progress to date.

Updating the Overseas Trade in Services Price Indexes

The Overseas Trade in Services Price Indexes were first developed in 1999, to complement existing price and volume indexes for merchandise trade. Statistics New Zealand has been progressively reviewing the services prices indexes since 2005, to ensure that they remain relevant. Updating the Overseas Trade in Services Price Indexes reports on progress to date.

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8. Release dates

Price index release dates for the next three months

M = Media conference

April 2007

Wed 18 M Consumers Price Index: March 2007 quarter
Food Price Index: March 2007

May 2007

Mon 7 M Labour Cost Index (Salary and Wage Rates): March 2007 quarter
Wed 9 Food Price Index: April 2007
Tue 15 Capital Goods Price Index: March 2007 quarter
Wes 16 M Producers Price Index: March 2007 quarter

June 2007

Mon 11 M Overseas Trade Indexes (Prices): March 2007 quarter (provisional)
M Overseas Trade Indexes (Volumes): March 2007 quarter (provisional)
Wed 13 Food Price Index: May 2007

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If you have any questions or comments about the Price Index News, please contact Nicola Argyle (Statistical analyst – Business, Labour and Overseas Trade Price Index outputs).

Phone: 04 931 4600 (Wellington)
or 0508 525 525 (Information Centre, toll free within New Zealand)
Email: info@stats.govt.nz

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