Consumers Price Index: December 2011 quarter

Definitions

About the consumers price index

The consumers price index (CPI) measures the changing price of a fixed basket of goods and services purchased by New Zealand households. The selection and relative importance of the goods and services in the CPI basket represents the overall expenditure pattern of 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 represents $88.9 billion spent on goods and services by New Zealand households, at June 2011 quarter prices. This is based on information from the 2009/10 Household Economic Survey and other sources.

The CPI is used to help set monetary policy and for monitoring economic performance. It is used by the government to adjust New Zealand Superannuation and unemployment benefit payments once a year, to help ensure that these payments maintain their purchasing power. Employers and employees use the CPI in wage negotiations.

The CPI is published quarterly. The food group is the only CPI group for which an index is published each month.

A listing of the representative goods and services monitored in the CPI basket is available in the 'Available files' of Consumers price index review: 2011.

The sources and methods used to compile various parts of the CPI basket of goods and services are listed under CPI sources and methods available on the Statistics NZ website.

More definitions

A price index measures the change in price between time periods for a given set of goods and services. It summarises a set of prices for a variety of goods and services collected from a number of outlets.

The index reference period 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 similar fashion. The CPI has an index reference period of the June 2006 quarter (=1000).

Upward/downward contributions: items mentioned in this release are often those that made a large contribution to the overall movement in the CPI. An item's contribution is a combination of its weight in the index (ie its relative importance, based on its share of household spending on goods and services covered by the CPI) and the magnitude of price movement. For example, for two items recording the same percentage rise in price, the item with the larger weight in the CPI will make a larger contribution to the overall movement. This contribution is also referred to as points (or index points) contribution.

Tradable and non-tradable component series: the tradable component series contains goods and services that are imported or in competition with foreign goods, either in domestic or foreign markets. Movements in the tradables component (tradable inflation) demonstrate how international price movements and exchange rates are affecting consumer prices.

The non-tradable series contains goods and services that do not face foreign competition. It shows how domestic demand and supply conditions are affecting consumer prices.

Analytical measures of inflation: over the long term, the CPI captures the broad pattern of price change, but can be influenced by one-off events when analysing price change over shorter timeframes. To remove such influences, analytical measures of price change are calculated in an attempt to isolate the more persistent – or underlying – component of general price-level changes. Several analytical measures are constructed to give a good guide to underlying price-level change. These are a range of 'trimmed means' and a range of 'weighted percentiles' including a weighted median. Trimmed means and weighted percentiles are given in table 11 and table 12 of this release.

Trimmed means: exclude the influence of the largest price increases and decreases in the CPI. This is done at the item level of about 700 goods and services in the CPI basket (eg 91 octane petrol or strawberries). The trimmed means progressively remove the influence of the largest increases and decreases.

Weighted percentiles: highlight the movement of lower-level indexes at points in the distribution of price changes for a particular time period.