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Price Index News: July 2007

1. Working with others

Prices team meets with scanner data researcher

Kevin Fox of the Centre for Applied Economic Research at the University of New South Wales (UNSW) visited Statistics New Zealand's Wellington office in May. Kevin had discussions with Prices staff on scanner data research and house price measurement. UNSW has a price index-related scanner data research programme, in partnership with two national statistical agencies. He was interested to hear about the ways Statistics NZ used retail transaction data, obtained from ACNielsen and GfK, during the 2006 CPI review. Kevin was encouraged to hear that Statistics NZ plans to undertake further work in this area.

Statistics New Zealand's International Assistance Programme

As part of Statistics NZ's ongoing commitment to developing statistical capability in the Pacific, statisticians from Samoa, Tonga and Palau were welcomed to New Zealand for a four-week attachment in April and May. The focus for this year was 'data quality and editing strategies encompassing both business and household data'. The visiting statisticians attended an editing and imputation workshop hosted by the team that compiles the Consumers Price Index. The workshop was well received by the visiting statisticians and Prices staff enjoyed learning about the experiences of the visitors in producing their own consumer price indexes.

Upcoming Voorburg Group meeting

The twenty-second meeting of the Voorburg Group on Services Statistics will take place this September in Seoul, South Korea. Current plans for the meeting include finalising recommendations for accurate and coordinated measurement of prices and volumes in the road freight transport, and management consultancy, industries. These papers were begun at last year's meeting in Germany, and incorporate learning from different countries' presentations, as well as broad discussion of real-world and measurement issues that affect the industries. A general methodology paper, covering all service industries and incorporating theoretical and practical general issues and key points of a cross-cutting nature – the product of a year's international cooperation, will also be presented.

New information will be presented by Korea, France and the Netherlands on price and volume measurement in the information technology industries. The producers price indexes for these industries are currently under redevelopment in New Zealand, so Statistics NZ will be listening closely to the experience of other countries.

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2. Virtual papers

New Zealand Association of Economists conference 2007

Statistics NZ presented three price index-related papers during a session at the New Zealand Association of Economists conference in June 2007. The session was well attended and the papers generated a lot of discussion.

Two papers and the abstract for the third are linked below. The papers will be added to Statistics NZ's website later in 2007.

Papers:

The Difference between the Consumers Price Index and the Household Consumption Expenditure – Implicit Price Deflator: A Preliminary Analysis

Consumers Price Index: Retrospective Superlative Index and Impact of Alternative Housing Weights

Abstract:

Implications of Alternative Foreign Currency Conversion Methods in the New Zealand Producers Price Index

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3. Nuts and bolts

Presentation of trimmed means and weighted percentiles

Consumers Price Index (CPI) trimmed mean and weighted percentile analytical measures are available in supplementary tables released with the quarterly CPI Hot Off The Press. The annual measures are calculated by directly weighting annual percentage changes, rather than by aggregating the four relevant quarterly percentage changes. The CPI basket of goods and services was reselected and reweighted at the June 2006 quarter, resulting in a transition period during which the percentage changes used to calculate the annual trimmed mean and weighted percentile measures spanned the June 2006 quarter price reference period.

As the June 2006 quarter reweight resulted in some significant relative changes in expenditure weights (such as for petrol and the purchase of new housing), Statistics NZ made two sets of annual trimmed mean and weighted percentile measures available during the transition across the June 2006 quarter reweight. The two sets of figures were based on:

  • 'price-updated' June 2002 quarter expenditure weights
  • 'price-backdated' June 2006 quarter expenditure weights.

Two sets of figures were released for the September 2006, December 2006 and March 2007 quarters. From the June 2007 quarter onwards, only the June 2006 quarter expenditure weights will be used.

Statistics NZ considers that the transition across the June 2006 quarter reweight has resulted in a structural break in the annual trimmed mean and weighted percentile time series. For this reason, the annual time series based on the June 2002 quarter expenditure weights, and on the June 2006 quarter expenditure weights, will be presented as separate time series, with an overlap period of three quarters. The annual series based on the June 2002 quarter expenditure weights cease at the March 2007 quarter. The annual series based on the June 2006 quarter expenditure weights commence with figures for the September 2006 quarter and will be updated on an ongoing basis.

Supplementary tables show the way that the annual trimmed mean and weighted percentile time series will be presented for the June 2007 and subsequent quarters. Transition across reweights for trimmed means and weighted percentiles provides further details.

Change in construction processes

New figures calculated by Statistics NZ as part of its business price index redevelopment programme show a change in the way projects are being undertaken in residential, non-residential and civil construction. The use of subcontractors in residential building now constitutes 17 percent of a project’s expenditure. For non-residential building, the figure is 22 percent and for civil projects it is higher still, at 40 percent.

The reasoning behind this change is two-fold. Firstly, subcontractors are specialised tradespeople who are more likely to be able to get the job done in a shorter space of time and at a lower cost. Secondly, the number of ‘kitset’ home construction companies has increased, meaning that a lot of this work is subcontracted to builders (depending on the location of the work).

The construction of roads and other civil projects has a high percentage of expenditure on subcontractors. Road construction now requires a lot more traffic management and safety consideration. With a lot of bigger projects in New Zealand, large contractors subcontract different parts of the project to various firms and take on more of a project management role.

In Australia, a similar trend has been observed. In a paper on subcontractors by Crowley, Hager and Garrick*, they note that only 1.3 percent of enterprises in the construction industry have a turnover of more than A$20 million.

Their research goes on to show that there are a number of potential problems associated with sub-contracting. The quality of work can be lower, staff turnover can be higher, and in some cases there can be a loss of reputation for a construction company.

However, the use of subcontractors is increasing and for construction companies this means there are new challenges to face in how projects are completed. The construction industry has enjoyed growth of 35 percent in the past decade and the increased use of subcontractors has enabled them to keep up with this pace.

* Crowley, Hagar and Garrick (December 2000). Subcontractors in the Australian construction industry: No small business. Paper prepared for the Working Knowledge Conference, University of Technology, Sydney. http://www.oval.uts.edu.au/working_papers/2000WP/0008crowley.pdf

Redevelopment of the sea freight 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 NZ has been progressively reviewing the services price indexes since 2005, to ensure that they remain relevant. Redevelopment of the sea freight services price indexes reports on the redevelopment of the imports and exports indexes for sea freight services.

International practices for business price index sample selection

Statistics NZ is progressively redeveloping a suite of business price indexes (BPIs) comprising the Producers Price Index (PPI), the Farm Expenses Price Index (FEPI) and the Capital Goods Price Index (CGPI). As part of the redevelopment, New Zealand practice for various aspects of BPI compilation has been compared with the practices of five other Organisation for Economic Co-operation and Development countries. International practices for business price index sample selection looks at how BPI samples are selected in New Zealand and in the five other countries. International comparisons of other aspects of BPI compilation will be included in subsequent issues of Price Index News.

How used-car price changes are measured in the CPI

Purchase of second-hand motor cars (or used cars) had an expenditure weight of 3.30 percent of the Consumers Price Index (CPI) at the June 2006 quarter, making it one of the more highly weighted of the goods and services in the basket. The methods used to compile the used cars index are explained in How used-car price changes are measured in the CPI.

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4. On the horizon

Excise duty increase for petrol

The excise duty for petrol increased by 2.66 percent, or 0.69 of a cent per litre, on 1 April 2007. This increase will be fully reflected in the June 2007 quarter Consumers Price Index (CPI).

Road user charges

Road user charges increased by 2.66 percent, or $0.64 per 1,000 kilometres, on 1 April 2007. The full impact of this increase will be shown in the June 2007 quarter CPI.

Excise duty increase for alcoholic beverages

The excise duty for alcoholic beverages increased by 2.619 percent on 1 June 2007, a movement based on the CPI all groups less credit services index from the March 2006 quarter to the March 2007 quarter. Since prices are collected on a monthly basis, approximately one-third of the impact on retail prices will be shown in the June 2007 quarter CPI and the remaining two-thirds will be shown in the September quarter.

Increase in postal charges

The price of posting letters within New Zealand increased on 1 June 2007. One-third of the increase will be shown in the June 2007 quarter CPI and the remainder will be shown in the September quarter.

Increase in childcare subsidy

On 1 April 2007, there were increases in the hourly subsidy rates and the income thresholds of the childcare subsidy, administered by Work and Income. The increased rates and eligibility will have a downward influence on the early childhood education index in the June 2007 quarter CPI.

Minimum wage increase

From 1 April 2007, the minimum wage rate increased by 9.8 percent, from $10.25 to $11.25 for all workers 18 years and over. At the same time, the youth minimum wage rate, for workers aged 16 and 17 years, also increased 9.8 percent, from $8.20 to $9.00 an hour.

Since the June 2006 quarter, the Labour Cost Index (Salary and Wage Rates) has recorded some increases for pay rates as a result of the minimum wage increase that occurred in March 2006. It is expected that the June 2007 quarter release will include more increases due to the latest minimum wage increase. Industry indexes for retail trade, and for accommodation, cafes and restaurants, as well as occupation indexes for customer service clerks, and for service and sales workers are expected to show the largest number of minimum wage increases.

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5. Development updates

Reweighting the Labour Cost Index

Statistics NZ has initiated a project to reweight the Labour Cost Index (LCI), which measures changes in wage rates and non-wage labour costs.

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

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

It is likely that the first reweighted indexes will be released for the September 2008 quarter (wage and salary rates) and the June 2009 quarter (non-wage labour costs). The reweight will be based on the existing LCI sample and the existing industry and occupation groups.

Following the reweight using the existing classifications, Statistics NZ plans to implement more up-to-date industry (Australia and New Zealand Standard Industrial Classification 2006) and occupation (Australian and New Zealand Standard Classification of Occupations) classifications in the LCI. The new industry and occupation classifications are structured somewhat differently to the existing classifications used in the LCI, and the LCI sample will be refreshed to ensure it adequately represents the new classification structures. First LCI results using the new classifications are expected to be released for the September 2009 quarter. First QES results using the new industry classification should be released at about the same time.

The LCI reweight project will include initial research into the feasibility of including irregular wage and salary bonus payments in the LCI. A recommendation to include bonuses in the LCI was made by Adolf Stroombergen of Infometrics in his Official Statistics Research paper on improving wage statistics.

For further information about the LCI reweight please contact:
Adam Dustin
Wellington 04 931 4600
Email: info@stats.govt.nz

Redeveloping the business price indexes

Statistics NZ 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). Here is an update on progress.

In the March 2007 quarter, the redeveloped index for industry group I01 – road transport (passenger and freight) was rolled out.

Redevelopment was also provisionally completed for the industry group J – communication services. The new index, which uses a new price indicator method, has not yet been implemented. Implementation will take place later in 2007, once the index has been thoroughly tested to confirm that it will not introduce undue volatility into the PPI. Full documentation will be available once this testing is done.

Redevelopment is complete for the industry group indexes H – accommodation, cafes and restaurants; and industry sub-group L049 – other business services, which includes such diverse services as management consulting, advertising, personnel placement and building cleaning. Full documentation of these redevelopments will be available when the new indexes are implemented into the PPI.

Redevelopment is currently underway on the following industries: agriculture; heavy and civil construction, and construction trade services (within construction); petroleum, coal and basic chemical manufacturing; finance and insurance; computer services (within business services), real estate, and other property services; water transport, and other transport and storage services; retail trade; and wholesale trade. Current redevelopment provides further information about the project and progress to date.

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6. Short stories

The next issue of Price Index News will be published in October 2007. The short stories section will include an article about how electricity prices have changed since 1994, both from the producer perspective (based on the PPI) and from the household consumer perspective (based on the CPI).

The next issue will also include an article on the range and price of wet fish species available at supermarkets and fish shops. The article will draw on information collected from nearly 100 retail outlets in the 15 urban areas surveyed for the CPI.

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7. 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
  • 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 are at the end of the commentary of each Hot Off The Press information release. In addition, you can 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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8. Release dates

Price index release calendar for the next three months

M = Media conference

July 2007

Mon 16 M Consumers Price Index: June 2007 quarter
Food Price Index: June 2007

August 2007

Mon 6 M Labour Cost Index (Salary and Wage Rates): June 2007 quarter
Mon 13 Food Price Index: July 2007
Wed 15 M Producers Price Index: June 2007 quarter
Capital Goods Price Index: June 2007 quarter

September 2007

Tue 11 M Overseas Trade Index (Prices): June 2007 quarter (provisional)
M Overseas Trade Index (Volumes): June 2007 quarter (provisional)
Wed 12 Food Price Index: August 2007
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