Food Price Index Series 2017

Food price index review

We have reviewed the FPI, as part of a wider, three-yearly consumer price index (CPI) review to ensure the index remains relevant. The latest review was implemented with the publication of Food Price Index: October 2017 month onwards. FPI reviews are generally implemented in July months, however implementation the 2017 review was delayed a quarter due to the impact of the 2016 Kaikoura earthquakes on the work programme.

We updated the basket of representative food items being tracked in the FPI, updated the relative importance (weights) of the items in the basket and re-set the FPI indexes to a base period of June 2017 = 1000. Previous series were published on a base of the June 2006 month = 1000.

The updated weights show that about $34 of every $100 that households spend on food, is spent on grocery food. About $26 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 $15, and the remaining $10 is spent on non-alcoholic beverages.

Three items have been added to the FPI basket and seven have been removed, taking the number of items in the basket to 162. The items added to the basket are:

• fresh herbs

• olives

• flavoured tea bags.

The removed basket items are: - alfalfa sprouts - spring onions - taro - Canned corn - luncheon sausage - cottage cheese - takeaway milkshakes.

See Food price index review: 2017 (revised) for more information.

Sample size

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

Imputation

Due to being unavailable at the time of price collection, on average 0.7 percent of prices (not including seasonal fresh fruit and vegetables) are imputed each month – by carrying forward the previous month’s price.

Reference population

The reference population of the FPI covers approximately 98 percent of the usually-resident New Zealand population living in permanent dwellings. There are no exclusions based on income source or geographic location.

Expenditure weights

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

Expenditure weights are updated every three years as part of regular FPI reviews. The weights are derived largely from the 2012/13 Household Economic Survey (HES). 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 2016 (the ‘weight reference period’) expressed in September 2017 prices (the ‘price reference period’).

More information on the relative importance of FPI subgroups, classes, and selected sections can be found in table 6 of each food price releases’ tables.

Collection methods

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

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 about 560 outlets in the 12 surveyed urban areas. Of these, about 60 are supermarkets, 30 greengrocers, 20 fish shops, 30 butchers, 60 convenience stores (with about half being service stations and the rest being dairies, grocery stores, and superettes), 110 restaurants (for evening meals), and about 250 other suitable outlets (for breakfast, lunch, and takeaway food).

Statistics NZ collects prices from a sample of supermarkets in each of the 12 FPI pricing regions. This sample is designed to be representative of household purchases in each region. It was last reviewed in 2011. The sample of other stores was last reviewed in 2013 as part of the rolling review of outlets.

See CPI rolling review of retail outlets for more information.

Accuracy of the data

Population weights

From the July 2014 FPI onwards, regional price change is weighted using regional expenditure weights for the five broad regions (Auckland, Wellington, rest of North Island, Canterbury, and rest of South Island). This ensures that price change in regions where households spend more per person on a particular item relative to other regions. For broad regions with multiple pricing centres (rest of North Island and rest of South Island), we use population shares to allocate the regional expenditure weight to the pricing centres.

Previously, we used national expenditure weights in each of the (then) 15 regional pricing centres, weighted by the centre’s population share. This change was recommended by the 2013 CPI Advisory Committee (recommendation 6) and aligns with international best practice.

Outlet weights

Outlets are given appropriate weights to reflect their relative importance in terms of household spending.

Elementary aggregate formulae

Regional elementary aggregates are calculated for each of the 12 pricing centres from all prices collected for an item within that region. Regional elementary aggregates are calculated using a 'geometric mean of price relatives', or Jevons formula.

The Jevons formula is used to calculate average prices for all food goods and services in the basket, except fresh fruit and fresh vegetables. The Jevons formula assumes that households spend the same amount at each surveyed outlet in each period. This implies that increased quantities are purchased from outlets showing lower-than-average relative price change and decreased quantities from outlets showing higher-than-average price change. The calculation of fresh fruit and vegetable average prices uses the Dutot formula.

Information about the Food Price Index gives more information on the Jevons and Dutot formulae (see elementary aggregate formulae).

'On special' prices

Items that are 'on special' are included in the FPI at the price levels observed at the time of price collection. Quantity specials (for example, three loaves of bread for $5.00) are also taken into account (as the price per loaf for the special is usually lower than the price of a single loaf). Where discounted prices are available only to customers who belong to discount schemes, this is represented in the FPI by collecting these prices at some outlets within a region, but not others.

Consistency with other periods or datasets

Index base

The FPI now 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. The previous reference period was June 2006 month (=1000). This was done so that series that had fallen to 2 digits would have a higher level of clarity. For example, an index that moves from 11 to 10 requires a 9 percent fall in price, compared to an index moving from 1000 to 999 that only needs a 0.1 percent change. Due to the rebase date and implementation date being different, a few periods after the rebase have decimal places. This is to ensure the percent changes released remain consistent.

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.

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

Seasonal adjustment

The 2013 CPI Advisory Committee recommended we add analytical seasonally adjusted series to our publications. We produce an analytical series where the FPI (and CPI) are seasonally adjusted at the all groups, group, subgroup, and class levels. The headline FPI remains 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.

Seasonal availability of fruit and vegetables

Fruit and vegetable prices 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.

Weighted average retail prices of selected food items

Table 3 contains a selection of weighted average retail prices for the current and previous months. These weighted average retail prices were calculated from prices collected in the June 2006 month. Subsequent months' weighted average prices are then calculated by applying price index movements for the relevant items. These are not statistically accurate measures of average transaction price levels, but are reliable indicators of percentage changes in prices.