Consumers Price Index: December 2010 quarter

Consumers price index quarterly movement

The consumers price index (CPI) rose 2.3 percent in the December 2010 quarter, influenced by a rise in goods and services tax (GST). This is the largest quarterly increase since a 3.5 percent rise in the September 1989 quarter, when GST increased from 10 percent to 12.5 percent. The 2.3 percent rise follows 1.1 percent and 0.2 percent rises in the September and June 2010 quarters, respectively.

Ten groups increased in the December 2010 quarter, with transport (up 4.3 percent), food (up 2.1 percent), housing and household utilities (up 1.6 percent), and recreation and culture (up 2.9 percent) the most significant contributors.

The most significant individual upward contributions came from higher prices for petrol (up 6.8 percent), package holidays (up 15.6 percent), purchase of new housing (up 2.0 percent), medical services (up 5.0 percent), international air transport (up 5.5 percent), and property maintenance services (up 4.4 percent).

The most significant individual downward contribution came from lower prices for vegetables (down 3.3 percent). 

 

Impact of GST on the CPI

The GST rate rose from 12.5 percent to 15 percent on 1 October 2010. Lifting GST to 15 percent could increase retail prices of goods and services that are subject to GST by 2.22 percent. For example, a product priced at $100 (excluding GST) would have sold for $112.50 before 1 October. With GST increased to 15 percent, that product would retail for $115 (all other things being equal), which gives an increase of 2.2 percent.

Within the CPI, not all goods and services in the basket are subject to GST. Housing rentals, school donations, life insurance, and credit services are not subject to GST. Those items make up about 9 percent of the CPI, so about 91 percent of the cost of the September 2010 quarter CPI basket would be directly affected by the change in GST. This, coupled with the 2.22 percent increase in other prices (if the rise in GST were fully reflected in retail prices), would result in an increase of about 2.0 percent in the CPI.

The rise in GST will not be immediately reflected for some seasonally available goods and services in the CPI basket. The rise will be reflected when prices are next collected. For example, prices for winter seasonal clothing will next be collected in the June 2011 quarter, education fees in the March 2011 quarter, and rugby game admission in the March 2011 and September 2011 quarters. These items make up about 3 percent of expenditure on goods and services in the CPI.

CPI annual movement

The CPI increased 4.0 percent in the year to the December 2010 quarter, following increases of 1.5 percent and 1.7 percent in the years to the September and June 2010 quarters, respectively. The latest annual increase, influenced by the rise in GST on 1 October 2010, is the highest since a 5.1 percent increase in the year to the September 2008 quarter (when petrol prices peaked).

Eight of the 11 groups in the CPI made upward contributions in the year to the December 2010 quarter.

The most significant upward contributions came from:

• transport (up 6.6 percent)
• housing and household utilities (up 3.8 percent)
• food (up 4.6 percent)
• alcoholic beverages and tobacco (up 9.0 percent).

Downward contributions came from the clothing and footwear (down 1.3 percent), household contents and services (down 0.4 percent), and communication (down 0.6 percent) groups.

The most significant individual upward contributions came from higher prices for:

• petrol (up 14.2 percent)
• cigarettes and tobacco (up 17.0 percent)
• milk, cheese, and eggs (up 12.6 percent)
• vegetables (up 15.4 percent)
• electricity (up 5.8 percent).

The most significant individual downward contribution came from lower prices for audio-visual equipment (down 18.6 percent).

Distribution of item-level movements

The table below outlines the distribution of price movements in the September 2010 and December 2010 quarters. The CPI has been partitioned into national item-level indexes that increased, showed no change, or decreased.

These factors resulted in a 2.3 percent increase in the CPI for the December 2010 quarter, following an increase of 1.1 percent in the September 2010 quarter.

Of the prices collected from retail outlets by Statistics NZ's price collectors during the middle of the quarter (that is, not including the monthly collection), about one in 10 prices rose 2.0 to 2.5 percent (in line with the GST rise), one in four rose more than 2.5 percent, and one in two remained unchanged. Of prices collected by postal survey, about one in five prices rose 2.0 to 2.5 percent, one-third rose more than 2.5 percent, and about one-third recorded no change.

The following graph shows the index points contribution of all items that rose in price, all items that fell in price, and the total index points movement.

 

The index points contribution from items that increased in price rose strongly, while the contribution from items that decreased in price remained about the same. This has resulted in a stronger increase in the December 2010 quarter compared with the September 2010 quarter.

 

Transport

Prices for the transport group rose 4.3 percent in the December 2010 quarter, following 1.0 percent and 0.1 percent rises in the September and June 2010 quarters, respectively.

The most significant individual upward contributions came from higher petrol prices (up 6.8 percent). Higher petrol prices were influenced by the rise in GST, higher fuel excise duty, and higher international prices. Petrol prices in the December 2010 quarter were 8.5 percent lower than in the September 2008 quarter, when prices peaked. However, in the final week of December 2010, prices had risen to about 5 percent above the overall average for the December 2010 quarter.

International air transport prices rose 5.5 percent in the December 2010 quarter. Prices for international air transport usually show seasonal peaks in December quarters and are now about the same level as in the December 2009 quarter.

Prices for second-hand cars rose 2.8 percent and new car prices rose 1.9 percent.

Domestic air transport prices rose 7.1 percent in the December 2010 quarter. Higher prices were recorded for all surveyed routes (particularly the main-trunk routes), influenced by the rise in GST, higher fuel costs, and the departure of a provider in October.

The transport group increased 6.6 percent from the December 2009 quarter to the December 2010 quarter. The most significant individual upward contributions came from higher prices for petrol (up 14.2 percent) and other private transport services (up 11.8 percent, reflecting higher vehicle relicensing fees and road user charges).

 

Food

Food prices rose 2.1 percent in the December 2010 quarter, following a rise of 2.4 percent and a fall of 0.9 percent in the September and June 2010 quarters, respectively.

Four of the five food subgroups made upward contributions in the December 2010 quarter. Grocery food (up 2.7 percent) made the most significant upward contribution.

Other upward contributions came from restaurant meals and ready-to-eat food (up 2.3 percent), meat, poultry, and fish (up 2.4 percent), and non-alcoholic beverages (up 2.6 percent).

Fruit and vegetable prices fell 0.8 percent in the December 2010 quarter. A 3.3 percent fall in vegetable prices was partly offset by a 3.1 percent rise in fruit prices.

The food group increased 4.6 percent in the year to the December 2010 quarter. All subgroups recorded increases: grocery food (up 4.9 percent), fruit and vegetables (up 11.2 percent), restaurant meals and ready-to-eat food (up 3.8 percent), meat, poultry, and fish (up 2.1 percent), and non-alcoholic beverages (up 1.9 percent).

Within the grocery food subgroup, milk, cheese, and egg prices increased 12.6 percent on an annual basis and are now at their highest recorded level. 

For the year to the December 2010 quarter, vegetable prices were up 15.4 percent, while fruit prices increased 5.3 percent.

 

Housing and household utilities

The housing and household utilities group rose 1.6 percent in the December 2010 quarter, following rises of 1.4 percent and 0.5 percent in the September and June 2010 quarters, respectively.

The most significant upward contributions came from higher prices for: 

• the purchase of new housing (up 2.0 percent) 
• property maintenance services (up 4.4 percent)
• electricity (up 1.7 percent)
• local authority rates and payments (up 2.4 percent).

Electricity is priced monthly in the CPI and a 15 percent GST rate was applied for electricity consumed in the September month, which aligned with retailers charging 15 percent GST for invoices dated on or after 1 October 2010. One-third of the GST rise was shown in the September 2010 quarter CPI, while the remaining two-thirds was shown in the December 2010 quarter.

Local authorities usually determine their rates annually, with effect from 1 July. The movement in local authority rates and payments in the December 2010 quarter reflects the rise in GST for sub-annual payments and the movement for the remaining 20 percent of the weight in the sample that was not shown in the September 2010 quarter. An adjustment was made for the December 2010 quarter to reflect the estimated proportion of households who pay their rates annually, and who were subject to GST at 12.5 percent.

Rentals for housing, which are not subject to GST, rose 0.2 percent in the December 2010 quarter.

The housing and household utilities group increased 3.8 percent from the December 2009 quarter to the December 2010 quarter. The most significant upward contributions came from higher prices for electricity (up 5.8 percent), local authority rates and payments (up 6.9 percent), and the purchase of new housing (up 3.2 percent).

 

Other groups in the CPI

In the December 2010 quarter, upward movements were recorded for the following other groups:  

• recreation and culture (up 2.9 percent)
• health (up 4.4 percent)
• alcoholic beverages and tobacco (up 1.7 percent)
• miscellaneous goods and services (up 1.7 percent)
• household contents and services (up 1.9 percent)
• communication (up 0.7 percent)
• education (up 0.5 percent).

Combined, these groups contributed 9.63 index points to the overall CPI increase of 25.34 index points.

In the December 2010 quarter, the clothing and footwear group was the only group that remained unchanged.

The most significant upward contributions came from higher prices for package holidays (up 15.6 percent) and medical services (up 5.0 percent). Package holiday prices were influenced by overseas package holidays, which tend to rise strongly in December quarters, as do international air transport prices. Medical service prices were influenced by higher medical specialist fees.

CPI analytical series

In the December 2010 quarter, the tradable component rose 2.5 percent and the non-tradable component rose 2.2 percent. As all the items within the CPI basket that are not subject to GST are within the non-tradable component, the tradable component is likely to have been affected by GST to a greater degree.

For the year to the December 2010 quarter, the tradable component increased 3.3 percent while the non-tradable component increased 4.6 percent.

 

In the December 2010 quarter, the trimmed mean measures, which exclude extreme price rises and falls, recorded quarterly rises ranging from 2.0 (for the highest trim) to 2.3 percent (for the lowest trim). This indicates that underlying price change for the quarter was the same as or below the quarterly rise in the all groups CPI. The annual trimmed mean measures recorded annual increases of between 3.5 percent and 3.9 percent, which are below the annual increase in the all groups CPI.

 

For technical information contact: 
Sean Broughton or Daniel Griffiths
Wellington 04 931 4600
Email: info@stats.govt.nz

Next release ...

Consumers Price Index: March 2011 quarter will be released on 18 April 2011.

 

Annual indexation of New Zealand Superannuation rates and welfare benefits

Adjustments made to New Zealand Superannuation rates and welfare benefit rates at 1 April 2011 will be based on the percentage change in the CPI all groups from the December 2009 quarter to the March 2010 quarter, and the percentage change in the CPI 'all groups less cigarettes and tobacco subgroup' from the March 2010 quarter to the December 2010 quarter.

The overall percentage change, calculated by linking the 'all groups' and 'all groups less cigarettes and tobacco subgroup' series at the March 2010 quarter, is an increase of 3.75 percent.

A 'Benefit indexation table' showing the calculation of the 3.75 percent increase is included in the 'Available files' section of this Hot Off the Press on the Statistics NZ website (www.stats.govt.nz).

Adjustments made to New Zealand Superannuation rates and welfare benefit rates at 1 April 2012 and 1 April 2013 will be based on percentage changes in the CPI 'all groups less cigarettes and tobacco subgroup'.

Using the CPI to adjust monetary values

The CPI is used to adjust monetary values, such as in legislation and contracts. Care is required when using the CPI to adjust monetary values during the period in which the rise in GST is reflected in the CPI. This is due to some goods and services in the CPI not being subject to GST and the timing of inclusion of the higher rate of GST in the CPI. Care is also required when the monetary values being adjusted exclude GST.

As noted earlier, about 91 percent of the goods and services in the CPI basket are subject to GST. This means that the impact of the GST rise on the CPI would be an increase of about 2.0 percent (all other things being equal), rather than the 2.22 percent impact on goods and services that are subject to GST. As also noted earlier, timing issues mean some of the impact of the GST rise will occur after the December 2010 quarter CPI.

It would not be appropriate to adjust prices or monetary values that exclude GST (but which are subject to GST) by the CPI movement during the period in which the increase in GST is reflected in the CPI. This would result in double counting the GST increase if the higher rate of GST were added to the GST-exclusive values.

Another common use of the CPI is to adjust housing rentals. Housing rentals are not subject to GST. It should be noted that using the CPI to adjust rental values during the period in which the increase in GST is reflected in the CPI would mean that the adjustments would include the overall impact of the GST increase on the CPI.

For further information contact: 
Daniel Griffiths or Chris Pike
Wellington 04 931 4600
Email: info@stats.govt.nz