Food Price Index Series 2020

Review of the FPI

Reviews of the FPI are generally undertaken every three years, as part of a wider review of the consumers price index (CPI). We implemented the latest review when the July 2020 FPI was published. The review involved reselecting the basket of representative goods and services, updating the new national expenditure weights, and updating regional expenditure weights. No items were added or removed from the FPI basket as a consequence of the latest review. More information on the updated expenditure weights can be found below or in Food price index review: 2020.

Sample size

About 19,000 prices are collected from 560 retail outlets.

Imputation

Due to being unavailable at the time of price collection, on average less than 1 percent of prices (not including seasonal fresh fruit and vegetables) are imputed each month – using class mean imputation.

Reference population

The reference population of the FPI covers approximately 98 percent of the usually-resident New Zealand population living in permanent dwellings.

Expenditure weights

Expenditure weights give the relative importance of the food goods and services in the FPI basket.

As noted above, expenditure weights are updated every three years as part of regular FPI reviews. The current set of weights are derived from the 2018/19 Household Economic Survey (HES) and other sources. We also used information from food manufacturers and distributors, and supermarket scan data from The Nielsen Company.

FPI weights are based on household spending for the year to June 2020 (the ‘weight reference period’), expressed in June 2020 quarter prices (the ‘price reference period’).

The updated weights show that about $34 of every $100 that households spend on food, is spent on grocery food. About $27 is spent on restaurant meals and ready-to-eat food, and about $15 is spent on meat, poultry, and fish. Fruit and vegetable spending accounts for $13, and another $10 is spent on non-alcoholic beverages. (Percentages do not add to 100 due to rounding)

The CPI Review tables [Food price index review: 2020]https://www.stats.govt.nz/assets/Uploads/Food-price-index/Food-price-index-July-2020/Download-data/food-price-index-rewiew-2020.xlsx)show the relative importance of CPI groups, subgroups, and classes.

Impacts of COVID-19 on the 2020 CPI and FPI re-weights

As noted in Impacts of COVID-19 on the 2020 CPI re-weight we did not make any adjustments to weights in the food group as a part of the three-yearly review of the FPI due to the impact of COVID-19. However, our intention to adjust the intend adjust the weights for domestic and international airfares and overseas accommodation cost pre-paid in New Zealand means that the relative weight of all other CPI basket items, including food, will scale in association with the annual reweight of these three items. 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.

Collection methods

Prices are surveyed by visiting retail outlets in 12 pricing centres: Whangarei, Auckland, Hamilton, Tauranga, Napier-Hastings, New Plymouth, Palmerston North, Wellington, Nelson, Christchurch, Dunedin, and Invercargill.

From the April 2020 FPI release onwards, we have 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. Rather than being a point-in-time reference, the data feeding into the FPI is a weighted average for each month. This represents a great improvement over in-store price collection, and we intend to continue this method in future.

For other outlets, fresh fruit and vegetable prices are surveyed weekly, and the remaining food prices are generally surveyed between the 8th and 16th day of the month, although sometimes surveying starts and finishes earlier or later.

Sample design

Food prices are collected from close to 560 outlets in the 12 pricing centres. Of these, 56 are supermarkets, 32 are greengrocers, 53 are fish shops and butchers, 68 are convenience stores (eg dairies and service stations), and 350 are restaurants (with and without bars) and takeaways.

Accuracy of the data

Elementary aggregate formula

Average prices in the FPI are called elementary aggregates. These elementary aggregates are the first level of the index aggregation. We calculate regional elementary aggregates for each of the 12 pricing centres where price collection supports regional estimation. In other cases, we calculate regional elementary aggregates for five CPI broad regions (Auckland, Wellington, rest of North Island, Canterbury, rest of South Island) or, where prices do not support regional estimation, directly to a national elementary aggregate. Since the 2006 review of the CPI, we have used the geometric mean, or Jevons, formula to calculate the elementary aggregate indexes for items where outlet substitution is possible (eg for groceries and appliances).

We use the 'ratio of arithmetic mean prices', or Dutot, formula for fresh fruit and vegetables (as the first stage of aggregation is across both outlets within each region, and across weeks within each month).

Regional expenditure weights

From the September 2014 quarter CPI onwards, we weight regional price change using regional expenditure weights for the five broad regions (Auckland, Wellington, rest of North Island, Canterbury, and rest of South Island). Regional expenditure weights use expenditure in each region to weight regional price change. This ensures that price change in regions where households spend more per person on a particular item relative to regions (eg Auckland has 33.41 percent of the population and a FPI regional expenditure weight of 34.85 percent) has more influence on the combined national price change for that item.

For broad regions with multiple pricing centres (ie rest of North Island and rest of South Island), we use population shares to allocate the regional expenditure weight to the pricing centres.

We publish FPIs for the five broad regions based on regional council area boundaries. These indexes are available from Infoshare.

Regional expenditure weights for the five broad regions can be found in the FPI review tables Food price index review: 2020.

Outlet weights

We give outlets appropriate weights to reflect their relative importance in terms of household spending.

'On special' prices

As noted above, price data for some supermarkets is now a weighted average for the month, which reduces the ability to identify ‘special’ prices. For other outlets, items that are 'on special' are included in the FPI at the price levels observed at the time of price collection. Quantity specials (eg 15-pack of beer at a cheaper shelf price than the 12-pack) are also considered where appropriate (as the price per bottle for the special is lower).

Consistency with other periods or datasets

Index base

The FPI has an index reference period of the June 2017 month (=1000). This is the benchmark to which prices in other periods are compared (eg if the index number in a later period is 1150, prices have increased by 15.0 percent since the index reference period). Prices for later periods can also be compared in the same fashion.

Seasonal adjustment of prices – fresh fruit and vegetables

Until the June 2006 month, fresh fruit and vegetable items that exhibited a seasonal pattern were adjusted to remove the effect of normal seasonal change. From the July 2006 month onwards, the FPI incorporates seasonally unadjusted prices for fresh fruit and vegetables. This change is in line with a recommendation made by the 2004 CPI Revision Advisory Committee.

The ongoing, fully unadjusted FPI is linked at the June 2006 month to the previously published FPI, which is partly seasonally adjusted. As such, care is required when comparing annual movements over this transition period. Annual movements calculated over the annual period encompassing the June 2006 month were based on fully unadjusted index numbers for the latest month, compared with adjusted index numbers for fresh fruit and vegetables for the same month of the previous year.

Rather than seasonally adjusting fruit and vegetables, the prices of these items are reflected in the FPI when there is enough produce available to estimate representative average prices. For example, prices for nectarines are historically not included in the April and May FPI. Similarly, prices for strawberries are not included in the May and June FPI. This is because not enough prices can be collected from stores during these months. No price change is shown in the FPI for these items during these months. When produce returns to sufficient levels, the prices are again reflected in the FPI. Price movements then reflect the price change from the month that the item was last included to the current month.

However, we do produce an analytical seasonally adjusted series for the FPI (and CPI) at the all groups, group, subgroup, and class levels. The headline FPIs remain unadjusted. We have seasonally adjusted using direct adjustment rather than indirect since this produced 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.

Reconciling the FPI and food group of the CPI

When comparing the FPI and the food group of the CPI over a review period, note that the quarterly food group index number is not the average of the relevant three-monthly FPI numbers. Where there are changes to food basket items, prices for new CPI basket items would be collected in April, May and June (to apply the price change between the June and September quarters), whereas prices for new FPI items are collected for June (to apply the price change between June and July months).

The FPI has a monthly price reference period, and the prices for the June month can differ from the average of the April, May and June months. As a result, the monthly and quarterly base weights can differ, even though the same annual quantities were used.

Interpreting the data

Weighted average retail prices of selected food items

Table 3 of FPI releases contains a selection of weighted average retail prices for the current and previous months. These weighted average retail prices were calculated by applying index movements to weighted average prices for the June 2017 quarter CPI. They are not statistically accurate measures of average transaction price levels, but do provide a reliable indicator of percentage changes in prices.

Timing of published data

We generally publish the FPI 10 working days after the reference month.

For more information on the review, please contact:

Fiona Smillie or James Griffin 04 931 4600 info@stats.govt.nz