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Price Index News: July 2011

1. Short stories

Sure to rise: tracking bread prices in the CPI

Bread has been included in the consumers price index (CPI) basket since the time series began in 1914. Sure to rise: tracking bread prices in the CPI looks at how bread prices have changed during the past century.

A trip to the flicks: watching cinema admission prices in the CPI

Cinema admission prices were added to the consumers price index (CPI) basket in 1949. A trip to the flicks: watching cinema admission prices in the CPI looks at how cinema admission prices have changed over the past six decades.

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2. Working with others

Ottawa Group 2011 meeting

Statistics New Zealand hosted the 12th meeting of the United Nations International Working Group on Price Indices (known as the Ottawa Group) from 4–6 May 2011. The Ottawa Group is an international research forum for consumer price index (CPI) specialists. In May, 39 experts travelled to Wellington from around the world to share experiences and discuss the findings of research into measuring price change.

The topics discussed at the 2011 meeting were:

Scanner data: issues, methods, practice

Papers and discussion in this session focused on using scanner data to compile CPIs and the different calculation methods for index aggregation when using scanner data. Countries' experiences with scanner data were also discussed. The findings of research into, and lessons learnt in implementing scanner data in several countries were discussed and this helped to raise participants' awareness and understanding of theory and use. Participating countries have made greater use of scanner data and methods have improved in recent years, continuing the good work discussed at the 11th Ottawa Group meeting in 2009.

Price measurement for 'difficult to measure' products and services

There was keen interest in the different approaches to specific problem areas of measurement. Participants discussed the pros and cons of the various approaches, and related these to their own practices and research. Participants acknowledged the difficulty of measuring price change for telecommunication services, financial intermediation services indirectly measured (FISIM), second-hand cars, and housing rentals. Hedonic price measurement was also discussed.

Housing and residential property price indices

The third draft of the Eurostat Handbook on Residential Property Price Indices was presented. Themes from the handbook were summarised by the authors and 13 draft recommendations were presented. Papers prepared by participants complementing the handbook were also presented and discussed. These papers provided interesting country-specific examples of the material outlined in the handbook. The International Monetary Fund’s study of about 150 different house price measures produced in 24 countries was also discussed. The remainder of the session discussed specific issues related to measuring changes in house prices, including the challenge of producing statistics for very different types of housing in South Africa.

Developments in weighting and calculation methodology

Papers presented in this session covered index compilation methods and sample design. 'Superlative' indexes (which use the weights of both the earlier and current periods being compared) are a benchmark for the calculation of price indexes. However, most countries use Laspeyres-type formulas (which use weights from only an earlier period) due to insufficient data being available to produce superlative indexes in real time. Participants discussed the various alternative index forms and how these might be constructed in real time.

Intranational and international comparability and international comparisons

An econometric approach to constructing consistent panels to measure purchasing power parities (PPPs) and real incomes was discussed during this session. Participants welcomed the results of the study carried out by the University of Queensland, which provides a large dataset of international comparisons of real income and country price level. The results of the study are available on the University of Queensland International Comparisons Database website. Participants also discussed lessons learnt when compiling CPIs in small Pacific Island states.

Emerging issues in price indices

Presentations and discussion covered a range of topics including seasonal adjustment and price dynamics in external trade.

Papers and presentations given at the meeting are available on the agenda tab in the Ottawa Group 2011 section of the Statistics NZ website.

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

The Ottawa Group's main focus is on measuring changes in the prices that consumers pay. Another international forum for discussion of price indexes is the Voorburg Group, which focuses on research related to the production of service statistics, including measurement of price change. The International Labour Office and UN Economic Commission for Europe jointly host regular international meetings on price indexes. Together, these meetings provide forums for international discussion and increase cooperation in developing international standards and best practice methods for calculating price indexes.

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3. Virtual papers

Statistics NZ papers for Ottawa Group meeting

The 12th meeting of the Ottawa Group, an international research forum for consumer price index (CPI) specialists, was held from 4–6 May in Wellington. The group's meetings provide a forum for specialists and practitioners (who work for, or are advisors to, national statistical agencies or international organisations) to exchange their experiences and the findings of research on key topics relating to the measurement of price change.

Statistics NZ prepared four papers for the conference. Two papers were presented at the meeting. One of these compared different methods for calculating price indexes from scanner data and the other looked at price measurement of used cars and residential rents in the New Zealand CPI.

The results of the other two papers were discussed briefly during the meeting. The first of these gave an overview of an assessment currently being undertaken of different house price measures and the second discussed an empirical analysis of the frequency and level of weight updates in the New Zealand CPI.

Papers presented at the meeting

Frances Krsinich (Statistics New Zealand) Price Indexes from Scanner Data: A comparison of different methods.
Frances Krsinich (Statistics New Zealand) Measuring the Price Movements of Used Cars and Residential Rents in the New Zealand Consumers Price Index.

Paper discussed at the meeting

Frances Krsinich (Statistics New Zealand) An assessment of New Zealand's unofficial SPAR and stratified house price measures.
Ricky Ho, Peter Campion, Chris Pike (Statistics New Zealand) New Zealand Consumers Price Index – an empirical analysis of the frequency and level of weight updates.

These papers and others presented at the meeting are available from the Ottawa Group 2011 section of the Statistics NZ website.   

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4. Nuts and bolts

Audio-visual and computing equipment in the CPI

The audio-visual and computing equipment subgroup of the consumers price index (CPI) had a combined expenditure weight of 1.82 percent at the June 2008 quarter. The sources and methods used to compile the audio-visual and computing equipment subgroup of the CPI are explained in Audio-visual and computing equipment in the consumers price index.

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5. On the horizon 

Updating the CPI used cars index hedonic model

In the June 2011 quarter, we will implement an improved hedonic formulation to calculate the second-hand motor cars (or used cars) component of the consumers price index (CPI). Updating the CPI used cars index hedonic model explains the changes being made.

Impact of GST on the CPI

Goods and services tax (GST) rose from 12.5 percent to 15 percent on 1 October 2010. However, the rise in GST was not immediately reflected in the prices for some seasonally available goods and services in the consumers price index (CPI) basket. The rise will be reflected when prices for these items are next collected. These items make up about 3 percent of expenditure on goods and services in the CPI. Of this 3 percent, nearly half was reflected in the March 2011 quarter CPI. Nearly half will be reflected in the June 2011 quarter. The remainder will be shown in the September 2011 quarter.

In the June 2011 quarter, the higher rate of GST will be reflected for prices of goods such as winter seasonal clothing, heating equipment, and solid fuels.

Care required when using the CPI to adjust monetary values

The consumers price index (CPI) is used to adjust monetary values, such as in legislation and contracts. Care is required when using the CPI to adjust monetary values during the year-long period in which the rise in GST is reflected in the CPI. Some goods and services in the CPI are not subject to GST, some are zero-rated for GST purposes (meaning the applicable rate of GST is zero), and the rise in GST was not immediately reflected for all goods and services in the CPI that are subject to GST.

Special care is required when the monetary values being adjusted exclude GST.

It would not be appropriate to adjust prices or monetary values that exclude GST (but which are subject to GST) by the CPI movement during the period in which the increase in GST is reflected in the CPI. This would mean that the GST increase is counted twice.

Another common use of the CPI is to adjust housing rentals. Housing rentals are not subject to GST. Using the CPI to adjust rental values during the period in which the increase in GST is reflected in the CPI would mean that the adjustments would include the overall impact of the GST increase on the CPI.

If prices collected for the December 2010 and March 2011 quarters had been processed with a rate of GST of 12.5 percent for those goods and services that are subject to GST, the CPI would have risen by 0.5 percent in the December 2010 quarter and 0.8 percent in the March 2011 quarter. It would have increased 2.1 percent for the year to the December 2010 quarter and 2.6 percent for the year to the March 2011 quarter.

For further information contact:

Daniel Griffiths or Chris Pike
Wellington 04 931 4600
Email: info@stats.govt.nz

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6. Development updates

Upcoming consumers price index review

We are reviewing the basket of goods and services used to calculate the consumers price index (CPI). This review will focus on reselecting and reweighting items in the basket. The review will use information from the 2009/10 Household Economic Survey (HES) and other sources, including Statistics New Zealand surveys, government administration data, retail transaction data, and information provided by businesses. Results from the Household Economic Survey: Year ended June 2010 were published in November 2010. This review will help ensure that the CPI basket of goods and services remains representative of the purchases made by New Zealand households.

The new basket of goods and services will be used to calculate the September 2011 quarter consumers price index. These results will be published on 25 October 2011. An information paper about the review, including the new set of CPI weights and details of basket changes, will be released on 10 October 2011.

The reweighted food price index (for the July 2011 month) will be published on 25 August 2011.

The composition of the CPI basket was last reviewed in 2008. The previous CPI review used information from the 2006/07 HES.

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

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

Implementing ANZSIC06 in the producers price index

We implemented the 2006 version of the Australian and New Zealand Standard Industrial Classification (ANZSIC06) in the producers price indexes (PPI) in the March 2011 quarter. For details about the implementation, please see the section headed 'Implementation of new industry classification' in the commentary of the Producers Price Index: March 2011 quarter. The ANZSIC06-based industry weights are given in supplementary tables to the information release.

One of the uses of the PPI is for contract indexation purposes. From the March 2011 quarter onwards, the ANZSIC06-based PPI will be the official industry series. The existing ANZSIC96-based PPI industry series will continue to be available from Infoshare or on request until the March 2012 quarter. A list of data changes by date, including the time series currently available from Infoshare and those that are due to be discontinued, can be found on our website (see entry for 18 May 2011). Information on the use of price indexes for contract indexation purposes, and implications of the new official series becoming available, can be found in Contract Indexation: A Guide for Businesses.  Parties to existing contracts have the option of moving from the ANZSIC96-based PPI to the ANZSIC06-based PPI immediately (by linking at the December 2010 quarter) or at any time during the following five quarters ending with the March 2012 quarter.

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7. Release dates

Price index release calendar for the next three months

M = Media conference

July 2011

Wed 13 Food Price Index: June 2011
Mon 18 M Consumers Price Index: June 2011 quarter

August 2011

Tue 2 M Labour Cost Index (Salary and Wage Rates): June 2011 quarter
Wed 17 M Capital Goods Price Index: June 2011 quarter    
Wed 17 M Producers Price Index: June 2011 quarter
Thu 25 M Food Price Index: July 2011 (includes updated basket and weights)

September 2011

Thu 1 M Overseas Trade Indexes (Prices): June 2011 quarter (provisional)
Thu 1 M Overseas Trade Indexes (Volumes): June 2011 quarter (provisional)
Tue 13 Food Price Index: August 2011

This issue of Price Index News was released on Monday 11 July, 2011.

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