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Price Index News: January 2011

1. Short stories

Price and quality both matter

The unadjusted labour cost index (LCI) is an analytical measure that complements the official LCI. Like the official LCI, the unadjusted series measures changes in salary and wage rates for a fixed quantity of labour, but reflects quality change in addition to price change. Price and quality both matter explores the distribution of changes in the pay rates used to compile the unadjusted LCI.

The chilling facts about ice cream: tracking prices in the CPI

The chilling facts about ice cream: tracking prices in the CPI looks at how ice cream and edible ice prices have changed over the past three decades. Novelty ice cream and ice block prices have risen faster than overall food prices, while the price of a tub of ice cream has increased at a lower rate than food prices.

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2. Working with others

Economic Measurement Group Workshop 2010

Along with others from Statistics New Zealand, Daniel Griffiths and Frances Krsinich of the Prices business unit attended the Economic Measurement Group Workshop from 1–3 December in Sydney. This is the 10th time the workshop has run since it started in 1999 and, as in previous years, the programme focused on price measurement and productivity measurement. The price measurement part of the programme included papers on scanner data and house price measurement, both of which are directly relevant to research currently being undertaken by Statistics NZ's Prices unit.

Iqbal Syed, of the University of New South Wales, presented the results of using US supermarket scanner data to assess whether the current price estimation by the Bureau of Labor Statistics assigns the appropriate weight to promotional prices, which can move differently to regular prices. His results show that currently the implicit weighting of these prices under-represent their expenditure share. This work shows that scanner data has immediate potential to improve the traditional approach to price estimation, in addition to its potential to be used directly to estimate price movements.

Erwin Diewert, of the University of British Columbia and the University of New South Wales, talked about newly developed methods for measuring house price inflation, and in particular how these might be decomposed into land and structure price components. Jan de Haan, of Statistics Netherlands, showed how the sales-price appraisal ratio (SPAR) method for measuring house prices can be shown to be a sample-based estimator of a generalised regression estimator, which has good statistical properties. This is a useful result for New Zealand, where the Quotable Value house price index uses a SPAR approach.

Ottawa Group 2011 meeting

Statistics NZ is hosting the 12th meeting of the UN International Working Group on Price Indices (known as the Ottawa Group). The Ottawa Group is an international research forum for consumer price index (CPI) specialists, and in May 2011 approximately 30 experts will travel to Wellington from around the world to share their experiences and discuss research into measuring price change.

The Ottawa Group met for the first time in Ottawa in 1994, which is how the name of the group originated. The Group meets approximately every two years, and this is the first time that the meeting will be held in New Zealand.

The Ottawa Group's main focus is on measuring consumer price change. Other international forums for discussion of price indexes include the Voorburg Group, which is focused on research related to the production of service statistics, including measurement of price change. In addition, the International Labour Organisation (ILO) and United Nations Economic Commission for Europe (UNECE) jointly host regular international meetings to discuss price indexes. Together these meetings provide forums for international discussion relating to price indexes, and increase international cooperation in the development of international standards and best practice methods.

The Ottawa Group 2011 meeting in Wellington is organised into six separate discussion sessions, each devoted to a different topic. Attendees are invited to present their latest research papers relevant to the topics. The topics for the 2011 meeting are:

  • scanner data: issues, methods, practice
  • housing and residential property price indices
  • developments in weighting and calculation methodology
  • intranational and international comparability and international comparisons
  • price measurement for 'difficult to measure' products and services
  • emerging issues in price indices.

Invitations for the 2011 meeting of the Ottawa Group have been sent to 28 national statistical offices and international organisations, and 19 individuals. International organisations invited to the meeting include Eurostat (statistical office for the European Union) and the International Monetary Fund.

This meeting is a great opportunity for Statistics NZ to help facilitate an international exchange of ideas and cutting edge research into price indexes.

Additional information is available on the Ottawa Group 2011 website.

For further information please contact:

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

Australian consumer price index review

The Australian Bureau of Statistics (ABS) has undertaken a comprehensive review of the Australian consumer price index (CPI). The review process included convening an advisory group, publishing an issues paper, holding public forums, and calling for public submissions.

Issues considered during the review included:

  • the main purpose of the CPI
  • the compilation frequency of the CPI
  • an evaluation of the deposit and loans facility index
  • the frequency of CPI weight updates. 

A summary of the review decisions is available here. For more details see the information paper: Outcome of the 16th Series Australian Consumer Price Index (CPI) Review.

One interesting decision is that from the September quarter 2011 – when the 16th series will be implemented – the indirectly measured component of financial services will be removed from the headline CPI until such time as methods and data sources are sufficiently robust for reintroduction to the CPI. Direct fees and charges will remain in the index.

Other key outcomes, including possible moves to monthly CPI compilation from quarterly, and to four-yearly reweights from six-yearly, would require additional funding.

The previous Australian CPI review was implemented in 2005. Statistics NZ will also implement a New Zealand CPI review in 2011, following the previous review implemented in 2008. Statistics NZ convened an advisory committee in 2004, in the lead-up to the CPI review implemented in 2006.

Labour, Employment and Work Conference

The Fourteenth Conference on Labour, Employment and Work in New Zealand was hosted jointly by Victoria University of Wellington's Industrial Relations Centre and Institute of Geography, at the University's Pipitea campus. The Conference is an established labour market research symposium, bringing together labour market and employment relations researchers from around the country. Published papers from the conference are available online.

On the second day of the conference there was a session dedicated to productivity. One of the three presentations was by Bill Rosenberg of the New Zealand Council of Trade Unions, on the results of an investigation into the relationship between real wages and productivity in New Zealand. The research used the neoclassical economic growth model along with its key theoretical result that growth in real wages should align with the changes in the marginal productivity of labour. Official statistics used to measure real wages were sourced from the Quarterly Employment Survey, national accounts' compensation of employees, and both the labour cost index (LCI) official adjusted and analytical unadjusted salary and wage rates series. The adjusted and unadjusted LCI series were deflated by both the 'all groups' consumers price index and the producers price index to calculate real wage measures. The paper, Real Wages and Productivity in New Zealand, is available from the online link provided above (see row M11).

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3. Nuts and bolts

Overseas trade in services price index weights

The Overseas trade in services price index weights article summarises changes from 2009 to 2010 in the relative importance of different types of services that are exported or imported.

Household contents and services in the consumers price index

The household contents and services group had a combined expenditure weight of 5.26 percent in the consumers price index (CPI) at the June 2008 quarter. The sources and methods used to compile the household contents and services group are explained in Household contents and services in the CPI.

Property rates and related services in the consumers price index

The property rates and related services subgroup had a combined expenditure weight of 2.68 percent in the consumers price index (CPI) at the June 2008 quarter. The sources and methods used to compile the property rates and related services subgroup are explained in Property rates and related services in the CPI. 

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4. On the horizon

Timeliness improvement for trade indexes

Overseas trade price and volume indexes for the December 2010 quarter will both be released on 1 March 2011. These releases were scheduled for 10 March 2011, but are being brought forward seven working days due to an improvement in timing.

Increases within the CPI 'other private transport services' and 'petrol' classes

The consumers price index (CPI) 'other private transport services' class contains such services as vehicle relicensing, driver licensing, warrants of fitness, road user charges, parking services, and driving tuition.

Road user charges for a small private motor car, administered by the NZ Transport Agency, increased by 11.7 percent (or $4.63 per 1,000 kilometres) on 1 October 2010. Transaction fees associated with the purchase of road user charges remained unchanged and will moderate this increase. The fuel excise duty on petrol also increased, by 3 cents per litre, on 1 October. These price increases will be shown in the December 2010 quarter CPI.

Summer seasonal goods

Some goods in the CPI basket are purchased predominantly during summer. The CPI summer seasonal survey of these goods is conducted once a year, in the December quarter. Summer seasonal goods in the basket include summer clothing, footwear, and sports equipment. These goods are priced only in December quarters because they have a limited supply and demand in other quarters. Changes in summer seasonal prices are shown fully in December quarters and show no change in other quarters. For some outdoor living equipment goods, such as barbecues, prices are collected not only in December quarters but also in March quarters.

Increase in childcare subsidy

On 1 October 2010, the maximum hourly rates rose for the childcare subsidy that Work and Income administers. These rises will have a downward influence on the early childhood education index for the December 2010 quarter CPI.

Increase in goods and services tax

The rate of goods and service tax (GST) rose from 12.5 percent to 15.0 percent on 1 October 2010. Lifting GST to 15 percent could increase retail prices of goods and services that are subject to GST by 2.22 percent. For example, a product priced at $100 excluding GST would have sold for $112.50 before 1 October. When GST increased to 15 percent, that product would retail for $115 (all other things being equal), giving an increase of 2.2 percent.

Within the consumers price index (CPI), not all goods and services in the basket are subject to GST. Housing rentals, school donations, and credit services are not subject to GST. Those items make up about 9 percent of the CPI, so about 91 percent of the cost of the CPI basket would be directly affected by the change in GST. This, coupled with the 2.22 percent increase in other prices (if the entire rise in GST is fully reflected in retail prices), would result in an increase of about 2.0 percent in the CPI.

The rise in GST will not be immediately reflected for seasonally available goods and services in the CPI basket. The rise will be reflected when prices are next collected. For instance, prices for winter seasonal clothing will next be collected in the June 2011 quarter. About 1 percent of expenditure on goods and services in the CPI is for clothing items with prices collected only in winter.

In addition, the timing of the GST increase is not always straightforward, in particular, for areas such as local authority rates, electricity, insurance, and telecommunication. Electricity is priced monthly in the CPI and the higher rate of GST was applied to electricity consumed in the September month for invoices dated on or after 1 October 2010. This was reflected in the September 2010 quarter CPI. Similar treatment was applied to telecommunication services provided in the September month, but with invoices dated on or after 1 October 2010. Conversely, telecommunication services will also be impacted by the prepaying of fixed line rentals and cellphone access charges for on-account customers, where consumers did not face the higher rate of GST until services for November were invoiced in October.

Local authority rates can either be paid annually or via subannual instalments, with instalments attracting the higher rate of GST if the invoice date falls after 1 October 2010. Those paying rates annually will not face the higher rate of GST until the next rating year, which starts in July 2011. Those paying via subannual instalments will face the higher rate for the first instalment invoiced on or after 1 October 2010, and this will be reflected in the CPI.

Many insurance contracts, particularly in general and health insurance, are for a period of one year or are at least reviewed annually. Premium payments are made periodically in some cases, while in other cases a single payment is made. The higher rate of GST, in some cases, will not be applied until the next contract review date.

The CPI is used in contracts and in legislation to adjust monetary values. Care is required during the period in which the increase in GST will be reflected in the CPI. As noted above, about 91 percent of the goods and services in the CPI basket are subject to GST, meaning that the impact of the GST increase on the CPI would be an increase of about 2.0 percent (all other things being equal), rather than the 2.22 percent impact on goods and services that are subject to GST. As also noted above, there are timing effects that mean some of the impact of the GST increase occurred in the September 2010 quarter CPI and some will occur after the December 2010 quarter CPI. It would not be appropriate to adjust prices or monetary values excluding GST by the CPI during the period in which the increase in GST will be reflected in the CPI, as this might result in double counting of the GST increase. Another common use of the CPI is to adjust housing rentals. Housing rentals are not subject to GST, and it should be noted that using the CPI to adjust rental values during the period in which the increase in GST will be reflected in the CPI would mean that the adjustments to rental values would include the overall impact of the GST increase on the CPI.

In October, nearly one in four food prices collected monthly rose by more than 2 percent but not more than 2.5 percent. Once prices affected by discounting and the removal of discounting are excluded, two in every five food prices rose by 2.0 to 2.5 percent, with one in two grocery food prices rising by 2.0 to 2.5 percent. Three in five restaurant meal and ready-to-eat food prices remained unchanged.

If the entire GST rise from 12.5 to 15 percent was passed on by a retailer (and all other things remained equal), a food item would have cost 2.2 percent more in October than in September. Statistics NZ is not able to quantify how food prices would have changed in October if the rise in GST had not occurred.

An analytical table (available in the 'Available files' section) shows the percentage of prices collected monthly for October 2010, for each subgroup, the food price index (FPI), and selected other categories that fell, recorded no change, or rose. For prices that rose, these have been further grouped according to the size of the increase.

For the FPI, over 10,000 prices are collected each month, and 3,000 prices for fresh fruit and vegetables are collected each week, from about 650 outlets in 15 major urban areas. In addition, about 6,000 prices for non-food groceries and other products are also collected monthly, such as alcoholic beverages and tobacco, toiletries, household cleansers, etc.

 

Alternative way to access Price Index News articles

Four links are available on the Price Index News home page:

These links will take you to an archive of articles from past issues of the newsletter. To find previous CPI ‘Nuts and bolts’ articles, click on the ‘Nuts and bolts’ link, then click ‘CPI sources and methods’. The articles are divided according to the 11 CPI groups.

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5. Development updates

Update on the business price index redevelopment and ANZSIC 2006 project

The capital goods price index (CGPI) asset type indexes, and the producers price index (PPI) working-level industry output indexes, have all been redeveloped. These redevelopments were completed in the March 2010 quarter.

The PPI industry inputs indexes will be redeveloped as part of a project to update the industry classification used in the PPI. Work is currently underway to update the 1996 Australian and New Zealand Standard Industrial Classification (ANZSIC96) with the 2006 version of the classification for the PPI. We will provide quarterly updates on progress towards implementation, which will be for the March 2011 quarter in May 2011. For more detail, please see the ANZSIC06 information page.

Labour cost index review

Statistics NZ recently completed a labour cost index (LCI) review project. The LCI measures changes in wage rates and non-wage labour costs.

The reweight helped to ensure that the LCI continues to reflect the current labour market. The 2006 Census was a key data source for the reweight, as was the 2001 Census for the previous reweight in 2002. Other important data sources included: Statistics NZ's Business Frame (a register of New Zealand businesses), the Labour Cost Survey, and the Quarterly Employment Survey (QES).

The new expenditure weights were assigned at the sector of ownership (based on whether the organisation is owned privately, by central government, or by local government), by industry group, and occupation level. The expenditure weights reflected both the number of jobs filled by paid employees, and the pay rates for those jobs.

The reweighted salary and wage rates indexes for the September 2008 quarter were released in November 2008. The reweighted indexes of non-wage labour costs for the June 2009 quarter were published on 22 October 2009. These reweights were based on the existing LCI sample, and the existing industry and occupation groups.

Following the reweight using the existing classifications, more up-to-date industry and occupation classifications were implemented in the LCI. These new classifications (ANZSIC06 for industry, and Australian and New Zealand Standard Classification of Occupations (ANZSCO) for occupation) have different structures from the existing classifications used in the LCI. First LCI results using the new classifications were included in the September 2009 quarter salary and wage rates information release, published on 3 November 2009.

The LCI was re-expressed on a June 2009 quarter base (=1000). The sample of surveyed job descriptions was refreshed to better reflect the structure of the ANZSIC06 classification. The ANZSIC06-based industry and ANZSCO-based occupation indexes were not backcast before the June 2009 quarter. However, the LCI (salary and wage rates) series were published on the old industry and occupation classifications until the June 2010 quarter, providing a year-long overlap. For more information, see the Technical notes section of the Labour Cost Index (Salary and Wage Rates): September 2009 quarter information release.

The final stage of the project – to reweight the non-wage labour costs indexes under ANZSIC06 – was implemented in the June 2010 quarter, published on 22 October 2010. The results were released under both the old and new industry classifications, ANZSIC96 and ANZSIC06, providing a one-year overlap. From the June 2011 quarter onwards, only the new ANZSIC06 classification will be released. For more information, see the Commentary of the Labour Cost Index (All Labour Costs): June 2010 quarter information release. 

For more information, please contact:

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

Upcoming consumers price index review

A review of the consumers price index (CPI) will be implemented when the September 2011 quarter index is released in October 2011. The focus of this review will be reselecting and reweighting the basket of representative goods and services used to calculate the CPI. The review will make use of information from the 2009/10 Household Economic Survey (HES) and other sources. Results from the 2009/10 HES were published on 25 November 2010.

The previous CPI review used information from the 2006/07 HES and was implemented when the September 2008 quarter was released in October 2008.

This review will help ensure that the CPI basket of goods and services remains representative of New Zealand private resident household purchases.

For more information on the 2011 CPI review, please contact:

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

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6. Making contact

In future issues of Price Index News, we will use this section 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
  • 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 are at the end of the 'Commentary' section in each Hot Off the Press information release. You can also contact:

  • Chris Pike (Manager – Prices)
  • Litia Tapu (Project manager – Business, labour, and overseas trade price index outputs)
  • Daniel Griffiths (Project manager – Consumers price index outputs)
  • Peter Campion (Acting project manager – Index development).

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

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7. Release dates

Price index release calendar for the next three months

M = Media conference

January 2011

Mon 17 Food Price Index: December 2010
Thu 20 M Consumers Price Index: December 2010 quarter

 

February 2011

Tue 1 M Labour Cost Index (Salary and Wage Rates): December 2010 quarter
Fri 11 Food Price Index: January 2011
Thu 17 M Producers Price Index: December 2010 quarter
M Capital Goods Price Index: December 2010 quarter

March 2011

Tue 1 M Overseas Trade Indexes (Prices): December 2010 quarter (provisional)
M Overseas Trade Indexes (Volumes): December 2010 quarter (provisional)
Fri 11 Food Price Index: February 2011

 

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