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Price Index News: April 2016

1. Working with others

CSV files for price index releases – your feedback needed

Please tell us whether the content and format of the CSV file we included with Business Price Indexes: December 2015 quarter meet your needs.

We welcome any feedback that could help us improve the file for future releases – and whether you would like a CSV file included as part of the consumers price index release.

Machine-readable .csv files repeat the information from the usual Excel tables in a format that is easier for some of our customers to use. The file is located in the ‘Downloads’ box of the release.

Email your feedback to

2. On the horizon

New measures of inflation: Introducing the household living-costs price indexes

This article provides information about a new set of price indexes we’re developing to measure the inflation experience of groups of households. We’re aiming to publish the indexes on a quarterly basis starting later in 2016.

Why new measures are needed

It’s easy to forget that the consumers price index (CPI) is an average; it’s an aggregate statistic. This makes it well suited for use as a national barometer of inflation. The methods are aligned with the CPI’s principal use as a macroeconomic indicator for monetary policy purposes. Yet, hidden behind all averages is a distribution. The distribution of inflation means that the CPI does not necessarily align well with inflation experienced by different demographic groups.

To better meet this information need, we are developing new measures of inflation for groups of households, called household living-costs price indexes (HLPIs). These will provide greater insight into the inflation experienced by 13 different household groups:

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

The conceptual design of the HLPIs will differ from the CPI in two important ways:

  • The treatment of owner-occupied housing and interest payments will better align with individual household experience.
  • The aggregation method used will better reflect the inflation experienced by a ‘typical’ household within each group.

The reasons for these variations in approach are described below.

Public consultation and background

Our decision to create the HLPIs was a response to the 2013 CPI Advisory Committee recommendations and associated submissions from public consultation in 2014. The committee, a customer group set up to advise on the CPI, reconfirmed the CPI’s principal use to inform monetary policy-setting, and acknowledged that its design is a compromise between this principal use and other uses, such as adjusting a range of public and private payments. So the committee recommended we provide extra indexes to reflect changes in the purchasing power of incomes for different demographic groups.

In November 2015 we conducted additional public consultation to ask customers for their views on several technical decisions that will feed into the development of the HLPIs. In March 2016 we published Household living-costs price indexes – decisions after public consultation stating the decisions we made and the reasons why.

Conceptual design

For any group of households, there are two basic ingredients for measuring inflation:

  • commodity-level price change
  • expenditure patterns to aggregate price change.

We will calculate HLPIs by using population-group-specific expenditure patterns from the Household Economic Survey. These will provide the weights for the lowest-level price indexes in the CPI basket of goods and services (the coverage of HLPIs will be the same as the CPI, except for owner-occupied housing and interest payments, as described below). The basket comprises about 700 commodities and is designed to be a representative sample of consumer spending. The Household Economic Survey expenditure patterns will be aligned to CPI expenditure totals, to minimise known reporting bias in the survey.

Owner-occupied housing

The coverage of owner-occupied housing in the HLPIs will include mortgage interest payments and a link to market value property prices. This treatment will align better with the inflation experiences of owner-occupier households. The exclusion of these in the CPI – which instead tracks the cost of purchasing new dwellings (excluding land) – is a design choice that aligns with the CPI’s principal use for monetary policy purposes. Given that the CPI is used to help the Reserve Bank set the Official Cash Rate, the inclusion of interest payments in the CPI would introduce a circularity to this measure.

The HLPIs will include all interest payments. Interest rate changes will be quality-adjusted to maintain the purchasing power of the monetary amount of debt underlying these interest payments. Mortgage debt will be quality-adjusted using a market-value property price index (Quotable Value’s house price index) and other debt will be quality-adjusted using the CPI (as a broad measure of inflation).

Aggregation method

The aggregation method – used to combine household expenditure patterns within each household group – will use an unweighted average of the expenditure proportions for each household. This method is known as ‘democratic weighting’. It will better reflect the inflation experienced by a ‘typical’ household, compared with the ‘plutocratic weighting’ method used for the CPI. The CPI approach, again best suited to a macroeconomic indicator, involves calculating expenditure patterns from aggregate household expenditure. This latter approach means that higher expenditure households have a greater influence over the composition of the aggregate patterns.

Getting ready for publication

We have started setting up the new series in our production system and testing the quality of results, prior to publication on a quarterly basis starting later this year.

The pattern of insights we gained from the 2013 feasibility study provide a good guide of what to expect from the HLPIs (see Chapter 2 ‘Consumer price change for subpopulations’ in Consumers Price Index Advisory Committee 2013 discussion paper). The final design of the HLPIs will differ from the feasibility study indexes in two main aspects. The first is by using ‘democratic weighting’ and the second is by the use of a market-value property price index to quality adjust interest payments. This is instead of a new dwellings price index (that excludes land price change). These changes are in response to feedback obtained from the November 2015 public consultation.

We will make additional improvements to the weights by incorporating Household Economic Survey revisions, and using store-type and regional weighting. The group definitions will also be fine-tuned, most notably income quintiles will be defined using equivalised disposable income (the modified OECD equivalisation scale will be used). Additionally, we will produce HLPIs for expenditure quintiles, as expenditure appears to be a better proxy to standard-of-living than income.

For further information on the HLPIs contact:
Alan Bentley or Katrina Dewbery
Phone 04 931 4600

Excise duty increase for cigarettes and tobacco

The March 2016 quarter CPI (released 18 April 2016) will show how the latest excise duty increase for cigarettes and tobacco on 1 January 2016 affected retail prices. The price change shown in the March quarter’s CPI should fully reflect the excise increase, depending on the timing of price rises in stores and when Statistics NZ staff collected prices.

Each year, the government adjusts excise duty on cigarettes and tobacco. The latest adjustment was an increase of 10.33 percent, which was based on a 0.33 percent rise in the 'CPI less credit services' index between the September 2014 and September 2015 quarters. The 1 January rise also included a sixth successive 10 percent increase, as set out in the Excise and Excise-equivalent Duties Table (Tobacco Products) Amendment Order 2014 – this is the final 10 percent increase under current legislation.

The excise duty is now 66.85 cents a cigarette, up from 60.59 cents a cigarette in 2014.

In the December 2015 quarter, excise duty made up about two-thirds ($15.15) of the price of a packet of 25 cigarettes (before GST). A packet of 25 cigarettes cost $26.43 (including GST) in that quarter. 

Excise duty increases for cigarettes and tobacco

Date Excise duty (cents per cigarette) Increase (percent)
1 Jan 2009 30.955 5.07
1 Jan 2010 31.443 1.58
29 Apr 2010 34.587 10.00
1 Jan 2011 38.614 11.64
1 Jan 2012 44.210 14.49
1 Jan 2013 49.011 10.86
1 Jan 2014 54.539 11.28
1 Jan 2015 60.590 11.09
1 Jan 2016 66.851 10.33
Note: On 29 April 2010, excise duty on cigarettes rose 10 percent, while excise on tobacco rose 25.4 percent (tobacco first increased 14 percent and then another 10 percent).

Cigarette and tobacco prices increased 12.3 percent between the December 2014 and December 2015 quarters, including the excise duty increase in January 2015. Cigarettes and tobacco had a weighting of 2.30 percent in the CPI in the June 2014 quarter. Table 3 of Consumers Price Index: December 2015 quarter showed that the CPI excluding cigarettes and tobacco fell 0.3 percent in the year to the December 2015 quarter.

Education fees in the CPI

The March 2016 quarter CPI will show price changes for the following education fees:

  • tertiary education fees 
  • adult and community education fees 
  • primary, secondary and private school fees, donations, and uniform prices. 

We show education price changes in the March quarter each year, which aligns with the start of the academic year.

Domestic air transport

Jetstar has recently expanded its New Zealand domestic network to include several regional centres. We will show any impact of the new routes on prices for domestic airfares from the March 2016 quarter CPI.

The fares we use to estimate the domestic air transport price index are for one-way flights, for all fare bands, for each route across service providers. Due to the sometimes volatile nature of air fares, and the popularity of particular travel dates, domestic air transport prices are collected monthly and we maintain consistent pricing periods. 

10-year passports in the CPI

Effective 30 November 2015, 10-year passports are now available to New Zealand citizens over the age of 16.

Previously, the price of 5-year adult passports ranged between $140 and $293.30 (standard service being the cheapest and urgent the most expensive). With the implementation of the 10-year passports, prices now range between $180 and $360.

In the CPI, we show this change as a price decrease, as the price per year has fallen. We showed around half of the price fall from a 5-year passport to 10-year passport in the December 2015 quarter CPI, with the other half to be shown in the March 2016 quarter.

Passports for children will remain valid for five years, but the price has gone up from $81.70 to $105 for standard service and from $235 to $285 for urgent service.

Passport charges are included in the ‘other miscellaneous services not elsewhere classified’ class in the CPI and comprise about a quarter of the weight of this class. The ‘other miscellaneous services not elsewhere classified’ class represented 0.42 percent of the total weight of the CPI at the June 2014 quarter. In the December 2015 quarter CPI, ‘other miscellaneous services not elsewhere classified’ fell 1.7 percent from the previous quarter (equal to a -0.007 percentage points contribution to the CPI).

3. Development updates

CPI rolling review update 2015/16

As part of our work to ensure the CPI remains relevant and up-to-date, we undertake rolling reviews between our three-yearly updates of the CPI basket and weights.

We continue to review our postal survey collections to ensure prices are collected efficiently and continue to be relevant. This will ensure the collections meet the needs of our customers, stakeholders, and suppliers in the best way. We are working with key stakeholders and suppliers to review our methods for collecting electricity and childcare information. We are also reviewing the sample sizes across our suite of surveys to ensure that they accurately represent price change in their relevant industry.

We will implement the first of the changes from the rolling review in the March 2016 quarter CPI. This is a move away from survey collected prices for aerobics classes, to internet collected prices for gym subscriptions. We expect to roll out more changes in the coming quarters.

For more information on this CPI rolling review for 2015/16 contact:
Katrina Dewbery or Alan Bentley
Wellington 04 931 4600 or 0508 525 525

Annual update of producers price index weights

We update the producers price index (PPI) industry and commodity weights annually to help maintain the relevance of this index. The weights come from the supply and use tables (SUT) we produce each year as part of the New Zealand System of National Accounts. The updates reflect changes in economy-wide income and expenditure, in particular the mix of products and the mix of industries. We re-weight the industries at the New Zealand Standard Industry Output Categories level 4 and above (there are 118 level 4 industries).

See New Zealand Standard Industry Output Categories classification tables for details. 

We introduced the latest weights in the PPI tables for the March 2015 quarter business price indexes release, based on the 2011/12 SUT. These weights were first used to weight price movements from the December 2014 quarter to the March 2015 quarter. We are also updating the lower-level commodity indexes and product samples. This work is part of our review of the business price indexes.

We use the PPIs as deflators in calculating gross domestic product, which is New Zealand’s official measure of economic growth. These deflators remove the effect of price change so we can measure change in the volume of goods and services produced in the economy. The PPIs are also used as an inflation measure and in contract indexation; for example, to reflect changes in prices during the life of a commercial project so all parties have agreed procedures for adjusting originally contracted prices.

Reviewing the business price indexes

We are continuing our rolling review of the business price indexes (BPI) – the producers price index (PPI), the farm expenses price index, and the capital goods price index. The review has two objectives: to maintain the relevance of these indexes and to collect commodity data for use in New Zealand's national accounts.

We survey a sample of economically significant enterprises operating in New Zealand to collect information on their supply and use of goods and services (commodities). We use information from the commodity data collection to balance the production and expenditure estimates of gross domestic product (GDP), within an input-output framework. Doing this requires us to compile tables that detail the supply and use of commodities, by industry. We also use this commodity information (by industry) to update lower-level weights for the business price indexes. These are used as deflators in producing a chain-volume measure of GDP.

We carried out the previous PPI redevelopment from 2004 to 2010. The current rolling review is the first to use the Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06). As part of the review, we prioritised the ANZSIC06 industries, and are reviewing them on eight-year cycles for most industries, and on four or 12-year cycles for those remaining.

At present, we are reviewing these industries:

  • fishing
  • seafood processing
  • mining
  • road transport and other transport
  • wood product manufacturing
  • pulp, paper, and converted paper manufacturing
  • heavy and civil engineering construction
  • construction trade services.

We have completed reviews and also implemented lower-level PPI commodity weights and updated product samples for the following industries.

Implemented in the March 2013 quarter:

  • printing and publishing.

Implemented in the June 2013 quarter:

  • primary metal and metal product manufacturing
  • fabricated metal product manufacturing
  • electricity, gas, and water.

Implemented in the March 2014 quarter:

  • farm expenses price index.

Implemented in the June 2014 quarter:

  • forestry and logging
  • aquaculture
  • hunting and trapping
  • agriculture, forestry, and fishing support services
  • tobacco product manufacturing
  • petroleum and coal product manufacturing
  • basic chemical and basic polymer manufacturing
  • fertiliser and pesticide manufacturing
  • pharmaceutical, cleaning, and other chemical manufacturing
  • transport equipment manufacturing
  • electronic and electrical equipment manufacturing
  • machinery manufacturing
  • rail, water, air, scenic and sightseeing transport.

Implemented in the September 2014 quarter:

  • agriculture.

Implemented in the December 2015 quarter:

  • meat and meat product manufacturing
  • dairy product manufacturing 
  •  fruit, oil, cereal, and other food product manufacturing
  • beverage product manufacturing
  • building construction.

All other industries we are currently reviewing will have lower-level PPI commodity weights and updated product samples implemented after the December 2015 quarter. We will publish an updated list of these industries in Price Index News.

For more information about the rolling BPI review, please contact:
James Griffin
Wellington 04 931 4600 or 0508 525 525

4. Release dates

Price index release calendar for the next three months

April 2016

13 April:  Food Price Index: March 2016

18 April: Consumers Price Index: March 2016 quarter

May 2016

4 May: Labour Market Statistics: March 2016 quarter

12 May: Food Price Index: April 2016

18 May: Business Price Indexes: March 2016 quarter

June 2016

1 June: Overseas Trade Indexes (Prices and Volumes): March 2016 quarter

14 June: Food Price Index: May 2016

This issue of Price Index News was released on Wednesday, 6 April 2016.

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