Food Price Index

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Abstract

The food price index (FPI) measures the rate of price change of a fixed basket of food goods and services purchased by households.

Citation Information

Title

Food Price Index

Alternate Title

FPI

Creator

Prices

Publisher

Statistics New Zealand

Rights

Statistics New Zealand

Coverage Information

Temporal Coverage

  • 1960 to present

Topical Coverage

  • Macroeconomic statistics
  • Economic accounts
  • Prices
  • Food
  • Price
  • Fruit
  • Vegetables
  • Meat
  • Poultry
  • Fish
  • Seafood
  • Grocery
  • Beverages
  • Restaurant

Significant events impacting this study series

2006 FPI Review

The 2006 review involved the reselection of the basket of representative food goods and services, and the reweighting of the basket to better reflect the relative importance of household spending on food based on the 2006/07 HES. In addition, the sample of retail outlets that prices are collected from has been updated. A new expenditure classification system was also introduced and the 'elementary aggregate' formula used to calculate lower-level indexes reviewed.

New classification system

A new classification system, based on the United Nations' Classification of Individual Consumption According to Purpose and adapted to suit New Zealand conditions, was developed by Statistics New Zealand. The new classification system, the New Zealand Household Expenditure Classification (NZHEC), is being used for the rebased FPI and CPI.

Note that care should be taken when comparing the 2002 weights with the 2006 weights. The 2002 weights for the old classification system have been reclassified to the new NZHEC classification. There are some differences in the way the weights were aggregated in 2002 from the way they have been aggregated in 2006, due to the use of different classification systems.

Comparing the old and new classification systems at the subgroup level, the NZHEC meat, poultry, and fish subgroup is equivalent to the old system's meat, fish, and poultry subgroup. The NZHEC fruit and vegetables subgroup covers the same items as the old system's subgroup, with the exception of pasta sauces, which are classified under the NZHEC grocery food subgroup. A new subgroup, non-alcoholic beverages, draws on items previously classified under the old system's grocery food subgroup, and the restaurant meals and ready-to-eat food subgroup. Note, takeaway coffee, tea, and milkshakes are classified under the NZHEC restaurant meals and ready-to-eat food subgroup.

Review of food goods and services in the basket

Ten new food items were added to the basket. These include:

• frozen complete meals • bottled water • canned tomatoes • beans • parsnips • spring onions • frozen fish fillets (replaces frozen fish fingers) • pork roasts (replaces pork strips) • dried herbs (replaces peppercorns) • canned soup (replaces soup powder).

Additionally, takeaway soup was removed from the basket.

The pricing specifications for all the food goods and services in the FPI basket was also reviewed, to ensure that surveyed varieties and sizes are representative of household purchases. For some types of food, additional specifications such as calcium-enriched milk, ground coffee and bottled orange juice have been added, complementing existing more traditional ones such as standard homogenised milk and instant coffee.

Index reference

The July 2006 FPI is the first index published on a new index reference of the June 2006 month (=1000). Previous series were published on a base of the June 1999 month (=1000). For categories under the new expenditure classification that have equivalent indexes under the old classification system, the previously published percentage changes for periods up until the June 2006 month have been preserved by scaling the index numbers so that the June 2006 month is set to 1000. For categories with no equivalent existing series, a new time series has been calculated back to the June 1999 month.

Price movements for the updated and reweighted basket from the June to July 2006 months have been linked to the rescaled FPI at the June 2006 month.

Expenditure weights

The main source of information used to reweight the June 2006 FPI basket was the 2003/04 HES, which collected detailed information on the spending patterns of nearly 3,000 households. For food items where the HES was not considered to provide accurate information, such as confectionery and soft drinks, alternative information, such as supermarket scan data obtained from the Nielsen Company, was used. The initial weights, for the year to June 2004 (the weight reference period), were 'price updated' to the June 2006 month (the price reference period). This involved expressing the underlying quantities of the weight reference period in the prices of the price reference period.

Fruit and vegetables have a June 2006 expenditure weight of 13.55 percent, compared with 11.51 percent in June 2002. Total expenditure by households on both fruit and vegetables has increased, however, the relative weight for fruit has fallen. The increase in the expenditure weight for fruit and vegetables is partly due to improvements in the way grocery expenditure not further defined by households reporting in the HES was allocated across items in the FPI basket.

The share of the total food weight for meat, poultry, and fish has fallen, to 16.22 percent. This is partly due to improvements in the way grocery expenditure not further defined by households in the HES was allocated across items in the FPI basket. Price increases since the last reweight for meat, poultry, and fish have been lower than the overall price increases for food, which has also caused its share of the total food weight to fall.

The relative weight for grocery food (38.19 percent) has remained similar to its share of the total food weight in 2002.

The weight for non-alcoholic beverages (9.04 percent) has fallen, overall. The weight for coffee, tea, and other hot drinks has increased slightly, while the weight for soft drinks, waters, and juices has decreased, partly due to lower prices in the June 2006 month – which had an impact when weights were price updated.

There has been a strong increase in the overall weight for the restaurant meals and ready-to-eat food subgroup (23.00 percent compared with 21.14 percent in 2002). This reflects strong increases in spending by households on these types of items.

The FPI is not seasonally adjusted from July 2006

Until the 2006 review, fresh fruit and fresh vegetable prices have been adjusted to remove the effect of normal seasonal change. From July 2006, seasonally unadjusted prices of fresh fruit and fresh vegetables in the basket are being used to calculate the FPI. The ongoing, fully unadjusted FPI was linked to the partly adjusted, previously published FPI at the June 2006 month. This is in line with a recommendation made by the 2004 CPI Revision Advisory Committee to maintain the published time series, even though this may cause some short term disruption to users in interpreting annual movements.

Elementary aggregate formula

Prior to the 2006 review, the FPI used a 'ratio of arithmetic mean prices' (or Dutot) formula to combine surveyed prices at the first (or elementary) stage of aggregation. For the rebased FPI, the 'geometric mean of price relatives' (or Jevons) formula has been introduced for all goods and services in the basket, except for fresh fruit and fresh vegetables.

2008 FPI Review

Introduction The 2008 review encompassed the reselection of the basket of representative food goods and services and the reweighting of the basket to reflect the relative importance of household spending on food based on the 2006/07 HES. A greater level of detail was made available, with both the expenditure weights and index numbers being published for categories at the section level within selected classes.

Review of food goods and services in the basket

Before the 2008 review, there were 154 food goods and services in the FPI basket. As part of the 2008 review, seven new food items were added to the basket and four were removed. The items that were added to the basket are:

• fresh pineapple (replaces fresh peaches) • cooked chicken (priced at supermarkets, and joins frozen-whole, fresh pieces, and takeaway chicken that are already in the basket) • soy milk (replaces condensed milk) • free-range eggs (joins standard eggs) • hummus dip • frozen desserts (covers a broad range, including cheesecake) • chilled fruit juice and smoothies (joins 1-litre and 3-litre shelf-stable fruit juices).

The items that were removed from the basket are:

• fresh peaches (replaced by pineapple, although other stone fruit, such as nectarines, remain in the basket) • saveloys (sausages remain in the basket) • condensed milk (replaced by soy milk) • cheesecake (now covered by the broader frozen desserts category).

The pricing specifications of all the food goods and services in the FPI basket were also reviewed to ensure surveyed varieties and sizes are representative of household purchases.

Expenditure weights

The main source of information used to reweight the FPI basket was the 2006/07 HES, which collected detailed information on the spending patterns of about 2,600 households. However, because the HES doesn't provide accurate information for some food items, such as confectionery and soft drinks, information was also sourced from food manufacturers and distributors, and from supermarket scan data (from the Nielsen Company).

The initial weights for the year to June 2007 (the weight reference period) were 'price updated' to the June 2008 month (the price reference period). This updating involved expressing the underlying quantities of the weight reference period in the prices of the price reference period. The initial weights indicated that households spent $13.263 billion on food during the year to June 2007 (2006/07). When the food consumed during 2006/07 is expressed in prices that were current at June 2008, that spending rises to $14.583 billion (10.0 percent higher, due to increased food prices since 2006/07).

The relative importance of grocery food has increased slightly, from 38.19 percent in 2006 to 38.34 percent in 2008. Within this subgroup, the weight of milk, cheese, and eggs increased from 8.89 percent to 10.19 percent, which partly reflects recent increases in cheese prices.

The relative shares of fruit and vegetables, of meat, poultry, and fish, and of non-alcoholic beverages, all grew. The increase in the relative importance of non-alcoholic beverages, from 9.04 percent in 2006 to 10.18 percent in 2008, in part reflects real growth in spending on beverages such as soft drinks, energy drinks, and bottled water, and partly reflects the availability of better information sources for the 2008 FPI review.

Based on spending reported in the 2003/04 and 2006/07 Household Economic Surveys, the relative importance of restaurant meals and ready-to-eat food has declined. This decline is not thought to represent a real fall in spending between the two surveys. Rather, results from the two surveys suggest that the level of spending on restaurant meals reported in the 2003/04 survey may have been overstated. Spending on ready-to-eat food actually increased 16 percent, but when expressed as a percentage of total spending, its relative importance fell slightly, from 12.77 percent to 12.43 percent.

Food prices rose 8.2 percent in the year to June 2008. This annual increase is the largest annual increase since June 1990, when food prices rose 10.0 percent from a year earlier, partly as a result of an increase in the GST rate from 10 percent to 12.5 percent in July 1989. The prices of oils and fats rose 31.9 percent in the year to June 2008 (which reflects an increase of 87 percent in butter prices), and milk, cheese, and egg prices rose 22.8 percent (with cheddar cheese up 62 percent).

Faced with increases in food prices during 2007/08, consumers have reacted to some extent by changing their spending patterns. Supermarket scan data from the Nielsen Company for the years to June 2007 and June 2008 was used to examine whether any significant shifts were evident. The data, combined with FPI average prices, showed that consumers have been buying less cheddar-type cheese and buying less butter but more margarine. The 2008 FPI expenditure weights for cheddar cheese, butter, and margarine were adjusted to reflect these changes, which occurred after the 2006/07 survey period. Adjustments were also considered for milk and bread, but for these items there was no indication of declines in volumes.

Regional population weights

As part of the review of the FPI and the CPI, the regional population weights have been updated. These population weights are used to allocate the national expenditure weights of goods and services derived from the HES and other sources to the FPI pricing centres. The population weights ensure that a given price change in Auckland, for example, with a new population weight of 32.98 percent, would have nearly three times the effect on the national FPI than would the same movement in Christchurch, which has a new population weight of 11.55 percent.

The new population weights have been calculated by making use of local government boundaries. The 2008 weights were derived by assigning the usually resident population as at June 2007 of each regional council area to the pricing centre(s) within the region.

The population weights used previously were based on the usually resident population as at June 2005.

Additional indexes and table changes

Before the 2008 review, Statistics NZ published the FPI at the subgroup and class levels of the New Zealand Household Expenditure Classification, and for sections within the meat and poultry class. Interest in the FPI has been heightened as a result of recent increases in food prices, particularly for dairy and cereal products. Therefore, expenditure weights and index numbers are now being published for sections within the milk, cheese, and eggs class and for sections within the bread and cereals class. The new section indexes appear in tables 2.01, 2.02, and 2.03 of the Hot Off The Press.

Other table changes made as part of the review, that are incorporated for all release from July 2008, are:

• The table of non-standard series relating to fresh fruit and vegetables (previously table 3) has been removed, but the series remain publicly available. • The table of weighted average retail prices has been renumbered from table 4 to table 3, and series reference codes have been added. • The expenditure weights table has been renumbered from table 5 to table 4, and now includes the 2008 weights. • The regional population weights that appeared in tables 6 and 7 have been consolidated into one table (now table 5), which now includes 2008 weights.

2011 FPI Review

The FPI was reviewed in 2011, as part of a three-yearly review of the CPI. The review encompassed the reselection of the basket of representative food goods and services and the reweighting of the basket to reflect the relative importance of household spending on food.

The item pricing specifications were also updated and in some cases the sample of product sizes and varieties reselected. Price collectors were given brand-share targets for selected goods, based on supermarket scan data obtained from the Nielsen Company. This helped to ensure that the mix of brands in the FPI price samples reflects market shares.

The updated FPI sample of products was selected in April 2011. Price collection for the existing and new samples ran alongside each other until June 2011, when collection for the old index ceased.

Introduction The FPI is reviewed every three years to make sure that the food items that we track accurately represent the purchases that New Zealanders make. The review is part of a wider review of the consumers price index.

The Food Price Index: July 2011 information release includes an updated basket of food items, and new spending weights have been allocated based on the relative importance of the items in the basket.

Information sources on total food spending

We surveyed about 3,100 households from July 2009 to June 2010 to collect information about what households spend on food, and other goods and services, as part of the Household Economic Survey (HES). Each person in the survey recorded information about the food items they bought over a two-week period. Information from the survey, from food manufacturers and distributors, as well as supermarket scan data from the Nielsen Company, was used in the FPI review.

We estimate that households spent $15.669 billion on food from July 2009 to June 2010 (2009/10). When the food purchased in 2009/10 is expressed in prices that were current at June 2011 (the new FPI reference month), that spending rises to $16.871 billion (7.7 percent higher, due to increased food prices since 2009/10). This rise includes a 2.2 percent increase in food prices in October 2010, when the rate of goods and services tax (GST) rose from 12.5 percent to 15 percent.

Weekly household spending on food

Average weekly household spending on food in 2009/10, expressed in prices that were current in June 2011, was estimated to be $199. When food purchased in 2006/07 is expressed in prices that were current in June 2008 (the previous FPI reference month), weekly spending was $178. This gives an increase of 11.8 percent over the three years. Food prices increased 14.3 percent from June 2008 to June 2011.

The food price index is organised into five ‘subgroups’, which can be further broken down into 14 ‘classes’ and 61 ‘sections’ (17 of which are publicly available).

Average weekly household spending increased 11.8 percent, which is less than food prices increased (up 14.3 percent). This does not necessarily mean people are buying less food, because the FPI shows the price change of a fixed basket of food goods and services. This basket of food items is representative of the types of purchases made by consumers and is updated every three years to ensure that it reflects current spending patterns.

Over time, households tend to buy more of foods that are becoming relatively cheaper and less of foods that are becoming relatively more expensive. For example, if apple prices increased a lot, but pear prices increased only a little, consumers might be expected to purchase more pears and fewer apples than before.

At times when food prices are generally rising, some households stop buying branded products and purchase cheaper supermarket ‘house’ brands. Supermarket scan data showed that this occurred for some food items between 2006/07 and 2009/10. For example, sales of house brand products made up one-half of supermarket spending on milk in 2006/07, but this increased to two-thirds in 2009/10. In 2006/07, house brand bread made up one-sixth of supermarket spending on packaged loaves of bread, but this increased to one-quarter in 2009/10.

Relative importance of different types of food

The relative importance of the FPI subgroups is referred to as an expenditure weight. We calculate the weights of the subgroups based on their share of total household spending on food. For example, for every $100 households spend on food, $14 is spent on fruit and vegetables.

Based on 2009/10 spending at June 2011 prices, households spend more on vegetables (8.72 percent of spending on food) than on fruit (5.30 percent). Spending on meat and poultry (13.27 percent) outweighs spending on fish and other seafood (2.41 percent) by more than five to one. Households spend slightly more on bread and cereals (11.07 percent) than on milk, cheese, and eggs (10.10 percent).

The most significant increase was in the relative importance of non-alcoholic beverages, which rose from 10.18 to 11.20 percent. This partly reflects real growth in consumer spending on beverages such as soft drinks, energy drinks, and packaged coffee, and partly reflects the availability of better information sources for soft drinks, for the 2011 FPI review.

The relative importance of the fruit and vegetables, and restaurant meals and ready-to-eat food subgroups showed little change, increasing slightly. Fresh tomatoes, bananas, and potatoes remain New Zealand’s favourite fruit and vegetables (in terms of dollars spent). Within the restaurant meals and ready-to-eat food subgroup, there was a reduction in the relative importance of restaurant dining and an increase in the relative importance of ready-to-eat takeaway food.

The relative importance of grocery food has also shown little change, falling slightly from 38.34 percent in 2008 to 38.13 percent in 2011. However, the relative importance of items usually associated with home baking (such as flour, sugar, butter, and eggs) has generally increased. Together, these four items accounted for 2.8 percent of the basket in 2011, rising from 2.4 percent in 2008.

The relative importance of meat, poultry, and fish declined. Actual spending on meat, poultry and fish increased an estimated 9.0 percent from June 2008 to June 2011. However, the relative importance of this subgroup fell, from 16.63 percent to 15.68 percent (when expressed as a percentage of total food spending). Beef and veal rose in relative importance, influenced by prices increasing 15.9 percent between June 2008 and June 2011. The relative importance of preserved, prepared, and processed meat and of poultry fell. Prices for poultry fell slightly, down 2.4 percent and prices for preserved, prepared, and processed meat rose 10.7 percent. The relative importance of lamb fell, despite prices increasing 42.9 percent between June 2008 and June 2011.

Relative importance of different regions

Food prices are surveyed in 15 urban areas: Whangarei, Auckland, Hamilton, Tauranga, Rotorua, Napier-Hastings, New Plymouth, Wanganui, Palmerston North, Wellington, Nelson, Christchurch, Timaru, Dunedin, and Invercargill.

We used regional population figures to determine the relative importance of each of the 15 areas (each area is allocated a weight, referred to as a regional population weight). This makes sure that price changes at a regional level are accurately reflected in the national FPI. For example, a price change in Auckland (which has 33.43 percent of the population) would have about three times the effect on the national FPI as the same price change in Wellington (which has 11.07 percent of the population).

The 2011 FPI regional population weights are based on the estimated usually resident population at June 2010. The 2008 FPI regional population weights were based on June 2007 population estimates.

Changes to the food basket

The items in the FPI basket are selected to ensure that there is a good representation across the subgroups, classes, and sections. For classes and sections where there is relatively high variation in price change (that is, where the prices of items in the class or section tend to move differently), more items are selected than for classes and sections with little variation (that is, where prices move similarly).

Before the 2011 review, there were 157 food items in the FPI basket. As part of the 2011 review, four food items have been added to the basket. None have been removed.

The items added to the basket are:

• dried apricots (mainly from bulk bins, and joining packaged sultanas in the basket) • frozen berries (which join other processed fruit, such as canned peaches) • frozen chicken nuggets (which join other processed meats, such as sausages) • flatbread (eg pita bread and tortilla bread, which joins four other bread items).

Dried apricots return to the basket after being removed as part of the 1980 review.

Full lists of the 161 items in the 2011 FPI basket and the 157 items in the 2008 basket are available in the ‘Available files’ section of Food price index review: 2011.

Product specifications reviewed

We also reviewed the specifications of all the food products surveyed in the FPI to ensure that surveyed varieties and sizes are representative of household purchases.

For packaged foods (such as pasta sauces, jam, and canned fruit), supermarket scan data provided by the Nielsen Company was used to ensure brands being tracked in the FPI align with market shares.

Collecting food prices

Food prices are collected from about 650 outlets in the 15 surveyed urban areas. Of these, about 70 are supermarkets, 30 greengrocers, 30 fish shops, 30 butchers, 50 convenience stores (with about half being service stations and the other half being dairies, grocery stores, and superettes), 120 restaurants (for evening meals), and more than 300 are other suitable outlets (for breakfast, lunch, and takeaway food).

Prices are collected from a selection of supermarkets in each of the 15 FPI urban areas. We reviewed the selection of supermarkets we collect prices from. Due to an ongoing reduction in the number of distinct supermarket chains, we decided to reduce the number of supermarkets that we collect prices from. Overall, the number of supermarkets tracked has fallen by seven to about 70. Before the June 2011 review, about 205,000 food prices were being collected at supermarkets annually. Now that we are collecting prices from fewer supermarkets, and have added four new food items to the FPI basket, this has fallen to about 190,000 prices.

Changes in food prices from 2008 to 2011

From June 2008 to June 2011, the FPI increased 14.3 percent. Figure 4 shows that all food classes increased in price over this period, ranging from fish and other seafood (up 8.4 percent) up to vegetables (up 23.0 percent).

How the price changes of each class affect the overall FPI depends on the relative importance of the class and the size of the price movement. Bread and cereals made the largest contribution to the overall FPI increase between June 2008 and June 2011. This is because bread and cereals are relatively important in terms of household spending on food and prices increased 14.9 percent.

This was followed by:

• confectionery, nuts, and snacks (up 15.5 percent) • meat and poultry (up 12.1 percent) • vegetables (up 23.0 percent) • ready-to-eat (takeaway) food (up 11.7 percent).

The FPI basket will next be reviewed in 2014.

Impact of the Christchurch earthquakes on price collection

Following the Christchurch earthquake on 22 February 2011 price movements for the rest of New Zealand were used to calculate price movements in Christchurch for the March FPI. In June 2011, about half the prices used to calculate the June 2011 FPI had been collected before the 13 June earthquakes, collection was completed on 20 and 21 June, two working days later than other regions where we collect prices for the FPI.

Usage and limitations of the data

The FPI is a measure of food price change for households only, it should not be used or interpreted as an inflation measure for the economy as a whole.

Main users of the data

Economic analysts, the media, researchers, and the National Accounts and Customer Services areas of Statistics NZ.

Frequency

2 Monthly

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