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Price Index News: October 2009

1. Short stories

Dairy prices dip after soaring to unprecedented levels 

The July 2008 issue of Price Index News looked at The rising cost of food in New Zealand, and examined the rising costs of dairy products in New Zealand and internationally. Dairy prices dip after soaring to unprecedented levels updates this story, exploring how dairy prices have moved over the past year. 

When times are tough, wage growth slows

The labour cost index increased by 0.3 percent in the June 2009 quarter, which is the lowest quarterly increase since an identical increase in the June 1999 quarter. When times are tough, wage growth slows examines three periods dating back to the 1990s, when wage rate growth was relatively low, in the context of the prevailing economic circumstances. 

A comparison of household spending patterns based on the 1980 and 2008 CPI baskets

Household spending habits change over time. New technology delivers a seemingly endless supply of new consumer goods to the market, while those that fall out of favour disappear. The range of goods and services available for household consumption is continuously changing and this, in combination with changing consumer preferences and tastes, results in changes to household spending patterns. A comparison of household spending patterns based on the 1980 and 2008 CPI baskets examines how consumer spending habits have changed over the past three decades by looking at the differences between the 1980 and 2008 consumers price index (CPI) baskets.

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2. Working with others

New monthly housing price index

Statistics NZ's Prices business unit provided feedback on a recently released Reserve Bank discussion paper on the development of a stratified house price index using the Real Estate Institute of New Zealand's (REINZ) housing market data.

Approximately 1,800 suburbs are allocated to 10 groups (or strata) on the basis of their historical sales prices.  For example, suburbs accounting for 10 percent of the lowest sales by price between January 2005 and June 2009 are grouped into stratum 1. Median house prices are derived within each of the strata and combined to obtain a house price index which is less affected by compositional change than an overall national median house price measure. 

The REINZ monthly housing price index is based on a value of 1000 in January 1992, the first month for which electronic information is available.

REINZ started publishing the new housing price index on 14 August, based on the Reserve Bank's method, but was further improved by incorporating individual sales transactions reported by REINZ members, rather than medians at the suburb level. Here is REINZ's 14 August news release on the new monthly housing price index. Latest monthly housing price index results can be found in the REINZ Monthly Housing Price Index

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3. Virtual papers

Contract indexation

Parties that engage in commercial contracts use a range of price indexes produced by Statistics NZ in their indexation clauses (also known as contract escalation clauses). An indexation clause provides both parties to a contract with an agreed procedure for adjusting an originally contracted price, to reflect changes in costs or prices during the life of the contract. Contract indexation: A Guide for Businesses provides information on the price indexes produced by Statistics NZ and issues relating to their use in 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.

Government agencies use a variety of approaches to adjust government funding paid to non-government service providers to reflect changes in providers’ costs. For her research essay Cost adjustment of government funding paid to service providers, Shirley Nesbit interviewed officials from several government agencies to explore how government funding paid to non-government service providers is adjusted for inflation (or changes in costs). In her research, Shirley also examined why these adjustment approaches differ. 

Prices paper and poster from New Zealand Association of Economists conference

Frances Krsinich, a senior research statistician in Statistics NZ's Prices business unit, presented her paper Using Hedonic Regression to Assess the Housing Rentals Component of the New Zealand Consumers Price Index in July at the New Zealand Association of Economists conference in Wellington. The estimation of non-Housing New Zealand rents is based on data from an area-based sample survey, updated with Department of Building and Housing data on new bonds lodged. A 'matched sample' approach is used to remove the effect of changing sample composition, and therefore changing quality characteristics, from the measurement of price change. Although matched sample approaches for price change measurement are common across official statistics agencies, there is a potential risk that some pure price change implied by the changing population of rented dwellings is removed.

As part of a more general review of the housing rentals index estimation, Frances used hedonic regression models to examine whether there is any residual pure price change being smoothed out of the index due to the matched sample approach. In the process, she explored different approaches to the specification of the hedonic regression models and the corresponding index calculation from the model parameters.

Katrina Lindsay, a statistical analyst in the Prices business unit, prepared a poster Fifty years of food for the conference. The poster, which won the conference poster prize sponsored by NZIER, looked back over 50 years at the consumers price index's food basket and price changes. 

Discussion paper on analysing wage and price dynamics

In June 2009, the Reserve Bank published a discussion paper Analysing wage and price dynamics in New Zealand, by Ashley Dunstan, Troy Matheson, and Hamish Pepper.

The paper examines the relationship between wages and consumer prices over the past 15 years. Consumer prices were disaggregated into non-tradable and tradable components. The wage measure used was the labour cost index, private sector salary and wage rates (including overtime). The authors found that wages predict increases in non-tradable prices through the cost-push channel, and that tradable prices had an impact on wages through the demand-pull channel.

Treasury article on non-tradables inflation

In the July 2009 Monthly Economic Indicators report, the Treasury reported on the non-tradable component of the consumers price index (CPI). The report's special topic on non-tradables inflation looks into the relationship between non-tradables inflation and domestic demand, the influence of the housing and household utilities group, and the contributions to non-tradables inflation.

To read the article on non-tradables inflation, see page 6 of the July 2009 Monthly Economic Indicators report.

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4. Nuts and bolts

Domestic and international air transport in the consumers price index

Domestic and international air transport had a combined expenditure weight of 2.31 percent in the consumers price index (CPI) at the June 2008 quarter. The concepts, sources, and methods used to compile the domestic and international air transport classes are explained in Domestic and international air transport in the CPI.

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5. On the horizon

Employer KiwiSaver contributions

From 1 April 2008, employers have been making compulsory contributions to their employees' KiwiSaver schemes. Employer minimum contributions were originally set at 1 percent of their employees' gross salary or wages. Employers were also able to receive a tax credit of up to $20 a week per employee, to assist in offsetting the cost of making compulsory employer contributions. Based on information used in the labour cost index, employers were able to reclaim, on average, about 70 percent of their contributions to KiwiSaver schemes. See Employer KiwiSaver contributions and the labour cost index for further details.

From 1 April 2009, employer minimum contributions increased to 2 percent, and the employer tax credit was removed, so employers no longer receive rebates on their contributions. Another change that was implemented from 1 April 2009, is that any voluntary employer contributions (ie contributions above the compulsory 2 percent minimum rate) are liable for Employer Superannuation Contribution Tax.

The changing cost of employer contributions to superannuation schemes is one of six non-wage labour costs measured by the labour cost index (all labour costs). The impact of these changes on employer KiwiSaver contributions, specifically the increase in the minimum employer contribution and the removal of the tax credit, will be shown in the Labour Cost Index (All Labour Costs): June 2009 quarter Hot Off the Press, scheduled for release on 22 October 2009.

Increases within the CPI other private transport services class

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.

Prices for vehicle relicensing, administered by the NZ Transport Agency, rose on 1 July 2009, reflecting an increase of $32 in the ACC motor vehicle levy for a petrol car. These price increases will be shown in the September 2009 quarter CPI.

The announced increase for road user charges, which takes effect on 1 October 2009, will be reflected in the December 2009 quarter CPI.

Local authority rates in the CPI

The CPI local authority rates survey is conducted annually in the September quarter, for a sample of territorial authorities and regional councils. Rates are surveyed once a year because local authorities usually strike their rates annually. While normally any rate changes come into effect from 1 July, not all territorial authorities and regional councils set rates during the September quarter. The small number of rates struck after the September quarter, combined with the timing of survey returns and processing, results in rates changes being shown in both the September and December quarter CPIs. For the past five years, between 80 percent and 90 percent of the weight in the sample of local authority rates has been included in the September quarter CPI.

More information on local authority rates can be found in the October 2007 Price Index News article Local authority rates in the CPI.

Alcohol excise duty increase

The annual indexation adjustment of the excise duty on alcoholic drinks occurred on 1 July 2009. The adjustment was a 2.871 percent increase in the excise duty, based on the movement in the 'CPI less credit services' index from the March 2008 quarter to the March 2009 quarter.

The impact on retail prices should be fully shown in the CPI for the September 2009 quarter, depending on the timing of price increases in stores, and the timing of price collection by Statistics NZ staff.

Heat Smart initiatives

On 1 July 2009, the government introduced higher levels of funding to the 'Warm up New Zealand: Heat Smart' initiative (which replaced the previous home insulation programmes), administered by the Energy Efficiency and Conservation Authority (EECA). Homeowners with houses built before 2000 are eligible for funding to help insulate their houses, and install clean and efficient heating. For more on the Heat Smart initiative, see the EECA website and the EECA Energywise website.

The estimated impact of price subsidies available to households under the Heat Smart initiative will be incorporated in the CPI for the first time in the September 2009 quarter, within the property maintenance services class. This class falls within the non-tradables component of the CPI. There will be no direct impact on the tradables index, as households receiving the subsidies must go through approved Heat Smart service providers, and cannot purchase insulation or clean heating goods directly.

Alternative way to view Price Index News 

This is the eleventh issue of Price Index News. By the time the twelfth issue is released in January 2010, there will be four new links available on the Price Index News web page. These four links will be to individual web pages that list (with links) articles from all issues that appeared under each of the following sections:

  • Short stories
  • Working with others
  • Virtual papers
  • Nuts and bolts.  

 

There will be an additional web page that lists consumers price index nuts and bolts articles.

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6. Development updates

Update on the business price index redevelopment

The redevelopment of the producers price index (PPI) and other business price indexes is nearly complete. The remaining indexes are ready for testing and will be progressively implemented in the PPI for the September and December 2009 quarters, and for the March 2010 quarter to be released in May 2010. An update on the project's progress can be found on the Business Price Index Redevelopment Project web page.

Labour cost index review

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

The reweight will ensure 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 (a register of New Zealand businesses), the Labour Cost Survey, and the Quarterly Employment Survey (QES).

The new expenditure weights are being 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 will reflect 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 will be released on 22 October 2009. These reweights are 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 (Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06)), and occupation (Australian and New Zealand Standard Classification of Occupations (ANZSCO)) classifications will be implemented in the LCI. These new industry and occupation classifications have different structures from the existing classifications used in the LCI. The LCI sample has already been refreshed to ensure it adequately represents the new classification structures. First LCI results using the new classifications will be included in the September 2009 quarter salary and wage rates information release, which will be published on 3 November 2009.

The ANZSIC06-based industry series and the ANZSCO-based occupation series will start at the June 2009 quarter, and will be expressed on a base of the June 2009 quarter (=1000). The series will not be back-cast prior to the June 2009 quarter. However, the LCI (salary and wage rates) series on the old classifications will continue to be published until the June 2010 quarter, providing a year-long overlap.

Recent work on the review has focused on finalising the reweight of the non-wage labour costs on the old classifications, and implementing ANZSIC06 and ANZSCO.

If you would like to be kept informed of progress on the LCI review, please contact:

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

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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
  • 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 in each Hot Off the Press information release. In addition, you can contact:

  • Chris Pike (Acting manager – Prices)
  • Litia Tapu (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)
  • Ludeth Mariposa (Acting 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

October 2009

Thu 15 M Consumers Price Index: September 2009 quarter
Food Price Index: September 2009
Thu 22 Labour Cost Index (All Labour Costs): June 2009 quarter

November 2009

Tue 3 M Labour Cost Index (Salary and Wage Rates): September 2009 quarter
Wed 11 Food Price Index: October 2009
Mon 16 M Producers Price Index: September 2009 quarter
Capital Goods Price Index: September 2009 quarter

December 2009

Thu 10 M Overseas Trade Indexes (Prices): September 2009 quarter (provisional)
Overseas Trade Indexes (Volumes): September 2009 quarter (provisional)
Fri 11 Food Price Index: November 2009
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