Consumers Price Index

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Abstract

The CPI measures the rate of price change of goods and services purchased by New Zealand households.

Purpose

The consumers price index (CPI) measures the changing price of a fixed basket of goods and services purchased by New Zealand households. The aim of the CPI is to measure price changes of the same sample of products at each outlet over time. When there is a change in the size or quality of any of the goods or services in the basket, an adjustment is made to ensure that the price change shown in the CPI is not affected by the change in size or quality.

The CPI is used to help set monetary policy and for monitoring economic performance. It forms part of the calculation used to adjust New Zealand Superannuation. It is often used in contract escalation clauses, and employers and employees also use the CPI in wage negotiations.

The CPI is published quarterly.

Household living-costs price indexes (HLPIs) are also published quarterly.

The food group is published monthly. This is known as the Food Price Index (FPI).

The rent sub-group (RPI) is also published monthly

Citation Information

Title

Consumers Price Index

Alternate Title

CPI

Creator

Prices and Construction

Publisher

Stats NZ

Rights

Stats NZ

Coverage Information

Temporal Coverage

  • 2020-09 to present

Topical Coverage

  • Price indexes
  • Consumers Price Index (CPI)
  • Food Price Index (FPI)
  • Rent Price Index (RPI)
  • Consumers
  • CPI
  • Food
  • FPI
  • Inflation
  • Price
  • Retail price
  • Cost of living
  • Monetary policy
  • Tradables
  • Non-tradables
  • Trimmed means
  • Weighted percentiles
  • Goods
  • Basket
  • Expenditure
  • Household expenditure

Studies

Papers

Usage and limitations of the data

The CPI is a measure of price change for private New Zealand households only. It should not be used or interpreted as an inflation measure for the economy as a whole.

Significant events impacting this study series

There have been three distinct phases in the historical development of retail/consumers price indexes in New Zealand. The first phase up to the end of World War II shows early developments and refinements in retail price indexes. The second phase began in 1948 with the first government-appointed committee making detailed recommendations for a revision, a practice that has continued at regular intervals since. The beginning of the third phase in 1974 saw a significant change in direction with respect to weighting. The consumption approach, which had been used up to that time, was no longer considered appropriate and was replaced by an expenditure-based system for which significantly more accurate data was available. Up to 1983 this expenditure-based system was revised at three-yearly intervals with alternating major and minor revisions. The cycle was broken when the major review scheduled to take place in 1986 was deferred due to the introduction of the Goods and Services Tax (GST). That review was carried out in 1988.

A summary of the major points from each major review follows.

1.1 Retail price indexes up to the end of World War II

The earliest official and systematic investigation of retail prices in New Zealand began in 1914 and was published in the Report on Cost of Living, 1891-1914.

Retrospective collection of price data was carried out in Auckland, Wellington, Christchurch, and Dunedin, each of which was given equal weight.

The commodity groups covered were food, housing (rent), and fuel and light.

The resulting index series was based on average annual aggregate expenditures for the four centres for the period 1909 to 1913 and calculated using the Laspeyres formulae.

From 1914, the coverage of price surveys was extended to 25 urban areas for commodities in the original groups, and population weights were introduced.

The effect of wartime conditions and pressure for wage arbitration prompted further expansion of price collections in 1918.

In 1924, the clothing and miscellaneous groups were incorporated into the index, and the publication of a quarterly all groups index commenced.

The index was revised in 1930 and the weighting pattern thoroughly reviewed.

During World War II, the Department of Statistics continued to survey the prices of all commodities covered by the 1926-30-based index.

After the war this data was used to calculate revised index numbers for the years 1942 to 1949, during which period only a Wartime Price Index had been published.

A method of adjusting for seasonal variations was introduced at this stage.

1.2 Post-war revisions of the CPI to 1974

The 1948 review

The first RAC was appointed by the Government in 1948 to review the compilation of the index and identify the various theoretical concepts to be used.

The regimen was no longer limited to essential commodities but was designed to cover “the whole range of commodities and services used in the average household — with representation as far as possible, of the amenities of modern living”.

The housing group incorporated the rentals of furnished properties, the cost of owner-occupied housing and rentals of unfurnished housing. A user-cost approach was adopted for owner-occupied housing.

The regimen comprised five commodity groups — food, housing, fuel and light, clothing and footwear, miscellaneous.

To improve the accuracy of price quotations and initiate quality control procedures, the Department of Statistics appointed its own team of field staff.

The weighting pattern of the new index was derived from quantities based primarily on the latest available statistics of production, exports, imports, and manufacturing inputs.

The 1955 review

Urban areas in which prices were surveyed were reduced to 21 and individual index numbers were published for each.

Direct estimates of consumption based on retail sales began to be used in the derivation of the weighting pattern.

Fewer commodities were excluded on the grounds of luxury status, resulting in a net increase in the number of regularly priced items.

Important changes were made in the treatment of seasonal items (fruit, vegetables and eggs), in the housing area, and for measuring the movements in transport charges.

The 1965 review

The CPI continued to be subdivided into six groups and 15 subgroups.

Index numbers were calculated for 14 individual centres (but prices were collected in 25 centres), comprising the four main centres and 10 other larger centres. Series were also produced for North and South Island groupings of the smaller centres.

1.3 Reviews of the CPI from 1974

The 1974 review

A fundamental conceptual change was made to the CPI at the time of the 1974 review from the consumption-based approach to an expenditure-based approach.

The 1977 review

During this minor review attention was focused on updating the expenditure pattern of the index and incorporating up-to-date population weights for the urban areas in which price surveys were conducted.

The 1980 review

A major change was made in the derivation of the overall weight for the purchase and construction of dwellings. In the 1974 and 1977 reviews the weighting calculation incorporated the expenditure of households either acquiring a dwelling, or selling a dwelling and buying a replacement (In this second case, the net cost — ie the difference in price between the sale and the purchase — was used in the calculations). The 1980 review incorporated the net proceeds of all sales made by households, including those who sold dwellings and did not make a corresponding purchase. This change was in accordance with the recommendations of the 1978 RAC and contributed to a considerable fall in the weights given to the direct costs of purchase and construction of new dwellings.

The 1983 review

Commodity expenditure and population weights were updated during the 1983 minor review.

Improvements were made to price survey procedures for insurance, health care, accommodation and entertainment admissions.

The 1988 review

The 1988 review was originally scheduled for 1986, but due to the introduction of GST, the 1985 RAC recommended that it be postponed until Household Economic and Income Survey (HEIS) data free from the effects of the pre-GST spending boom became available.

Because of the deregulation of the economy initiated in 1984, new or expanded price surveys were introduced for a range of commodities and services.

The index regimen was also restructured for the first time since 1974. The new structure disaggregated the regimen into more useful and homogeneous commodity groupings. The former miscellaneous group was divided into tobacco products and alcoholic drinks; personal and health care; recreation, education, and generalised credit.

The number of centres that were price surveyed was reduced to 20.

In 1991 the number of centres that were price surveyed was further reduced from 20 to 15.

The first Reserve Bank Policy Targets Agreement (PTA) was signed in 1990. The Reserve Bank was required to achieve and maintain price stability with 0 to 2 percent annual underlying inflation as a target by December 1992. For the PTA, inflation was to be measured by the CPI less the effect of changes in interest rates, some government charges, and international commodity price shocks.

The 1993 review

Credit was viewed as a service in its own right and a major structural change was made to the regimen with the introduction of a separate credit services group.

Following a recommendation from the 1991 RAC, the price indicator for dwellings was adjusted to represent the price movements of new dwellings only.

Postal survey questionnaires were extensively redesigned and outlet samples were also reviewed and updated where necessary.

Price surveys for mail-order clothing, door-to-door cosmetics, and farm gate outlets for fresh fruit and vegetables were introduced.

A selection of small towns were also surveyed to determine whether their price movements differed significantly from those in the 15 price-surveyed urban areas.

The seasonal adjustment process for fresh fruit and vegetables index was revised, with seasonal factors being updated annually. Fixed weights were introduced for fresh fruit and vegetables, replacing the system of variable weights which had previously been used.

Between the 1993 and 1999 reviews

After the 1993 review, Statistics NZ developed a new index calculation system that incorporates the price relatives formula, a variant of the Laspeyres index.

In 1995, a research index for superannuitant households was first published.

Item weights and prices of some items within the CPI are now reviewed annually. The first of these reviews was completed in the June 1996 quarter. Any changes to expenditure weights are presently generally performed below the published regimen level.

The 1999 review

Interest and residential section prices were removed from the CPI all groups.

Introduction of the use of hedonic regression quality adjustment of used cars and fridge-freezers prices.

The inclusion of charges for bank account maintenance, bank transactions, and other bank fees into the ‘credit services’ group in the index.

The 2006 review

The 2006 review was informed by the 2004 Revision Advisory Committee on the CPI.

The 2006 CPI review encompassed a number of aspects, detailed below.

The basket of representative goods and services was been reselected and reweighted, using information from the 2003/04 Household Economic Survey (HES) and other sources. The sample of retail outlets from which prices are collected has been reselected for the first time since the 1999 review. Item specifications have been updated and the sample of product sizes, brands and varieties has been reselected. While the sample of 15 regional centres is remaining unchanged, price collection effort is being redistributed more towards the larger cities.

A new expenditure classification was adopted; the New Zealand Household Expenditure Classification (NZHEC). The new classification is based on the international standard Classification of Individual Consumption According to Purpose (COICOP) and has been adapted to suit New Zealand conditions. Index time series based on the new classification have been recast from the June 1999 quarter up to the June 2006 quarter.

The geometric means (or Jevons) formula was introduced in the reweighted index to calculate elementary aggregate indexes for goods and services that are considered to be subject to outlet substitution. The Jevons formula, which is recommended by the International Labour Office (ILO), implicitly assumes that consumers increasingly favour outlets showing lower relative price change, whereas the formula used up to this point, the ratio of arithmetic mean prices (or Dutot), assumes that consumers do not substitute between outlets.

The Dutot formula is used for items where:

• Outlet substitution is not possible (eg local authority rates); Prices are subsidised and may fall to zero (eg GPs' fees);

• Fresh fruit and vegetables (as the first stage of aggregation is across both outlets within each region, and across weeks within each month); and

• It is not currently practical to adopt the Jevons formula (eg when prices are aggregated directly to a national elementary aggregate, rather than aggregated to a regional level).

The CPI All groups index ceased to include prices that were seasonally adjusted. Until the 2006 review, fresh fruit and vegetable prices were seasonally adjusted, while the prices of other goods and services known to exhibit seasonality (such as international airfares and holiday accommodation) were not adjusted. This change was recommended by the CPI Revision Advisory Committee.

The range of regional indexes that are routinely published was reduced from the 15 regional centres to five broad regions based on regional council areas (Auckland, Wellington, Rest of North Island, Canterbury, and Rest of South Island). The regional indexes currently being published are not considered fit for purpose, as they make use of national movements, where regional variation is possible, for about 30 percent of the basket (based on expenditure weight). National movements, where regional variation is possible, are currently being used for such important goods and services as construction of new dwellings, dwelling rentals and used cars. Indexes for the five broad regions will make use of price movements that correspond to the respective broad regions for construction of new dwellings, dwelling rentals, and used cars.

For the first time during a periodic CPI review, substantial use was made of retail transaction data, obtained from the Nielsen Company in New Zealand and GfK in Australia. The Nielsen Company collects details of sales of barcoded products that are scanned at checkout counters in supermarkets up and down the country. GfK collects similar information for a range of small and large appliances sold through most of New Zealand’s main appliance retailers and department stores. The information has been used to help determine the expenditure weights of some goods in the CPI basket, to select representative product sizes and varieties to survey, and to ensure that the mix of brands in the CPI price samples reflects market shares.

Some changes to the methods used in estimating CPI weights mean that the weights are not strictly comparable with those used in 2002. Weights published are expenditure weight shares, and changes in expenditure shares do not necessarily imply similar changes in actual levels of expenditure. Users interested in changes in consumer expenditure are referred to the HES or estimates of household consumption expenditure from the national accounts.

The 2008 review

A review of the Consumers Price Index (CPI) was implemented when the September 2008 quarter index was released on 21 October 2008. The review encompassed reselecting and reweighting the basket of representative goods and services, to ensure the basket continues to reflect household spending patterns.

The basket of representative goods and services was reselected and reweighted, using information from the 2006/07 Household Economic Survey (HES) and other sources.

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 of some seasonally available goods and services in the CPI basket. The rise was reflected when prices for these items were 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 in the June 2011 quarter, and the remainder was shown in the September 2011 quarter.

If prices collected for the December 2010, and March, June, and September 2011 quarters had been processed with GST of 12.5 percent for goods and services that are subject to GST, the CPI would have risen 0.4 percent in the September 2011 quarter, and 2.5 percent for the year to the September 2011 quarter.

There was no material impact on CPI movements from the Christchurch earthquakes in 2010 and 2011. For goods and services prices collected quarterly from shops in February 2011, collection was completed in all regions before the earthquake. In March, food (and non-food grocery) prices were not collected by Statistics NZ staff in Christchurch city. For Christchurch, price movements for the rest of New Zealand were used to calculate the March 2011 food price index, which represents one-third of the food group in the March 2011 quarter CPI. This approach was also taken for non-food grocery prices for the March month.

For goods and services prices collected quarterly by postal survey (and posted in early February 2011), there were lower-than-usual response rates for Canterbury respondents. The overall response rate for quarterly postal surveys was about 96 percent, compared with about 98 percent over the previous eight quarters. For most parts of the basket, the usual treatment for missing prices in the current quarter is to use the last reported price. With the lower response rate in the March 2011 quarter, there was the potential for the higher level of non-response to slightly flatten the quarterly movement. Therefore, price movements for responding businesses were used to bring the Christchurch response rate up to its usual level. Statistics NZ began collecting prices again in Christchurch in April 2011.

For goods and services prices collected quarterly from shops for the June 2011 quarter, collection was completed in May. While the June monthly collection of food and non-food grocery prices was put on hold for the remainder of the week following the Monday 13 June earthquakes, pricing was completed on Monday 20 and Tuesday 21 June.

For goods and services prices collected quarterly by postal survey (and posted in early May), the overall response rate for quarterly postal surveys was about 98 percent, which compares well with previous quarters.

By November 2011, when quarterly collection was undertaken, almost all outlets that had not been replaced had reopened.

The 2011 review

A review of the consumers price index (CPI) was implemented when the September 2011 quarter index was released on 25 October 2011. The review encompassed reselecting and reviewing the basket of representative goods and services, to ensure the basket continues to reflect household spending patterns.

The basket of representative goods and services was reselected and reweighted, using information from the 2009/10 Household Economic Survey (HES) and other sources.

Statistics NZ began a continuing, rolling review of retail outlets visited for the consumers price index (CPI). These retail outlets are those from which prices are collected by Statistics NZ price collectors.

The rolling review considered;

• the retail outlets visited by Statistics NZ price collectors

• the detailed pricing specifications of products for the representative goods and services (items) that are tracked for the CPI at retail outlets.

• coverage of retailers and the mix of store-types for each item.

The first changes were implemented when the September 2012 quarter index was released in October 2012. Further changes were incorporated in subsequent quarterly releases.

Outlet samples were refreshed to ensure the outlets visited reflect where consumers shop.

The aim of the review of detailed pricing specifications was to ensure that the individual products tracked for the CPI are fit-for-purpose and that a representative selection of products is priced for each CPI item. Data sources for the review included the 2009/10 Household Economic Survey (HES), the Annual Enterprise Survey (AES), Statistics NZ's register of businesses (the Business Frame), and other data sources including scanner data obtained from the Nielsen Company.

The CPI retail outlet samples were last reviewed as part of the 2006 CPI review.

CPI items tracked at retail outlets have been organised into eight review groups:

• clothing, footwear, and furniture

• services, vehicles, and personal goods

• sports and stationery

• consumer electronics (annual review)

• convenience stores

• supermarkets: food

• supermarkets: non-food

• consumer electronics (annual review).

For the first review group, we looked at outlets visited for clothing, footwear, and furniture items. Around 30 of 670 retail outlets tracked for this group were replaced. The outlets visited for clothing items have been re-allocated to cover a wider range of retailers (particularly specialist and boutique clothing stores) and give greater coverage of clothing sales at sports and camping stores. Changes made to the furniture outlets were to give increased representation of new furniture retailers and those that have increased in significance since the last CPI retail outlet review.

Statistics NZ convened a CPI advisory committee in May 2013 to undertake an independent review of the methods and practices used to compile the CPI, and to advise the Government Statistician on the CPI.

The committee's recommendations informed the 2014 CPI review.

The 2014 Review

Changes from the 2014 CPI review were implemented with a re-selection of the basket of goods and services, and updating the weights of basket items to ensure the CPI maintains its relevance.

We changed the way we weight regional price change to better align with international best practice – by weighting it using expenditure in the five broad regions. This means that price change in regions with higher levels of expenditure per person (eg Auckland, which has a regional expenditure share of 34.87 percent in 2014 and made up 33.37 percent of the population) will have a bigger impact on the headline CPI. This change was recommended by the 2013 CPI Advisory Committee. Before this change, regional price change was weighted using each region’s share of the population.

We also reduced the number of regional centres that CPI prices are collected from – down from 15 to 12. This was done in order to re-invest the cost of collection towards funding CPI-related initiatives such as developing the household living-costs price indexes for particular groups in society and producing the seasonally adjusted analytical CPI series, as recommended by the 2013 CPI Advisory Committee.

An analytical seasonally adjusted series was added to our publications (a recommendation of the 2013 CPI Advisory Committee). This series includes seasonal adjustment at the CPI and FPI at the all groups, group, subgroup, and class levels. The headline CPI remains unadjusted. Direct adjustment is used rather than indirect, as the former produces better quality statistics. Indirect seasonal adjustment occurs when individual component series of the main aggregate series are seasonally adjusted, then aggregated to derive totals. For example, an indirect seasonally adjusted fruit series would be compiled by adding all the seasonally adjusted series (for apples, pears, kiwifruit, etc) together. Direct seasonal adjustment occurs when seasonally adjustment is done at the aggregate level, independently of seasonally adjusting the components. A direct seasonally adjusted fruit series would be made up by adjusting the aggregate of all the unadjusted series (for apples, pears, kiwifruit, etc). We use the x13 ARIMA-SEATS package to run our seasonal adjustment.

The 2013 CPI Advisory Committee also recommended the development of a set of household living-cost price indexes. These were introduced in October 2015 (for the September 2015 quarter), backdated to the June 2008 quarter. These series use population-group-specific expenditure patterns from the Household Economic Survey to provide insights into the inflation experienced by 13 different household groups:

• beneficiaries

• Māori

• income quintiles (five groups)

• expenditure quintiles (five groups)

• superannuitants.

More information about these indexes can be found Household living-costs price indexes: Background.

From the September 2014 quarter, we incorporated retail transaction data, or ‘scanner data’, into the consumers price index (CPI), to measure price change for consumer electronics categories. Previously, we relied on sampling consumer electronics prices across several dimensions – categories, products, outlets, and time. When a product was no longer available, we replaced it with a similar product, based on discussion with retailers about market share and features.

In contrast, scanner data from the market research company GfK provides a more complete picture of both prices and quantities sold at any point in time. With information on the characteristics of each product, we have been able to use statistical methods to explicitly quality-adjust the price indexes using multiple characteristics to identify unique products. It also means we can incorporate new products in the index at the time they are introduced, and reflect their relative importance based on actual quantities sold.

The 2017 Review

Results from the 2017 review were implemented with the release of the December 2017 quarter CPI on 25 January 2018. Reviews are generally implemented in September quarter’s, however, the 2020 review was delayed a quarter due to the impact of the 2016 Kaikoura earthquake on the work programme. The 2017 review reselected the basket of goods and services, updated the basket weights and their relative importance, and re-set the CPI indexes to a base period of June quarter 2017 = 1000. (Previous series were published on a base of the June quarter 2006 = 1000.)

Consumers Price Index Review: 2017(https://www.stats.govt.nz/reports/consumers-price-index-review-2017) provides more details about the review.

Between the 2014 and 2017 CPI reviews we trialled and implemented new price collection techniques from alternative data sources. By adopting collection from secondary data sources we are able to increase the scope and accuracy of our pricing while reducing respondent burden.

For the purchase of second-hand cars in the transport group, we now use administrative data from the New Zealand Transport Agency to collect more prices and more specifications for hedonic price modelling.

The September 2017 quarter was also the first time we collected prices for certain items using web-scraping. This reduced manual processing time and human error. Web-scraping also allowed us to collect prices for those harder-to-get service providers such as on-line accommodation and transport, and private accommodation rented from others.

A new monthly rental price series was introduced in February 2019 for the January 2019 month. This new measure replaced the previous CPI rent survey from the June 2019 quarter onwards. The rental price indexes use MBIE’s tenancy bonds data in conjunction with a multi-lateral model, where changes in rent are represented by new lodgements of tenancy bonds. More information about the indexes can be found New methodology for rental prices in the CPI.

The 2020 Review

We implemented the latest review when the September 2020 CPI was published. The review involved reselecting the basket of representative goods and services, updating the new national expenditure weights, and updating regional expenditure weights. Consumers price index review: 2020 has more information.

Typically, reviews are undertaken every three years. Ordinarily, a three-yearly re-weight of the CPI is sufficient to pick up changing consumer expenditure patterns. Due to COVID-19, supply and demand factors are likely to speed up this rate of change, with some items more affected than others.

At the time the 2020 review was implemented, New Zealand’s borders were still closed affecting international travel and accommodation. After considering various factors, we decided to adjust the weights for domestic and international airfares and overseas accommodation cost pre-paid in New Zealand. Impacts of COVID-19 on the 2020 CPI re-weight has more information.

The weights for these three items will be reviewed annually. This means that the relative weight of all other CPI basket items will scale in relation. We aim to keep an eye on shifting expenditure patterns for other expenditure items over the next three years’, but would only consider changing weights for other items where there is a clear-cut case for doing so. This would be signalled well in advance of any change.

As a part of the 2020 review, we also ceased weighting the household living-costs price indexes (HLPIs) according to the types of stores used (for example, supermarkets) by each household group. Instead we are applying the same store-type weight for all household groups. Analysis of the HLPI series showed there was no discernible difference between the HLPI series calculated with and without store-type weights.

In the June 2020 quarter we incorporated point of sale (checkout scanner) price data supplied directly by some supermarkets as an alternative data source. This data replaced all the items that would have previously been manually priced in-store from these supermarkets. This represents a great improvement over in-store price collection, and we intend to continue this method in future.

Frequency

3) Quarterly

Main users of the data

The CPI is used by the Reserve Bank of New Zealand to help set monetary policy and for monitoring economic performance. It forms part of the calculation used to adjust New Zealand Superannuation. The CPI is often used in contract escalation clauses, and employers and employees also use the CPI in wage negotiations.

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