The ups and downs of the CPI

The commentary section of each consumers price index (CPI) Hot Off the Press gives additional information on the distribution of price movements for the latest quarter. Table 1 (below) shows how widespread price changes are, and their relative magnitude when compared with the previous quarter. An analysis of price changes from the September 2006 quarter to the December 2009 quarter can be downloaded in Excel format (see table 2 'Consumers price index, national item-level index movements') in the 'Available files' section of this article.

Table 1

The item-level indexes within the CPI (there are about 700), are partitioned into those item-level indexes that rose in price from the previous quarter, those that recorded no overall change, and those that fell. For each of these three groupings, information is given on the number of items, the percentage of all items, and the percentage of expenditure weight that these items represent. In addition, for the groupings of indexes that rose or fell, the overall impact on the CPI is given in terms of both index points contribution and percentage points, and the overall weighted average price increase or decrease of the grouping. Generally, the larger the percentage change in the item, or the larger the weight of the item, the larger the impact on the CPI.

For example, in the September 2009 quarter, the CPI rose by 13.5 index points (in unrounded terms; note that the CPI is given as rounded to the nearest index point for the calculation of percentage changes) and 1.2 percentage points.

The weighted average price increase and decrease use unrounded index numbers for the previous and current periods to calculate item-level price movements from the previous period, and these are weighted using previous period expenditure weights. The previous period expenditure weight of an item is calculated by updating price reference period expenditure weights (eg for the June 2008 quarter) by the price change for the item from the price reference period to the previous period. Previous period expenditure weights are also used to indicate the proportion of the expenditure weight that has increased, showed no change, or decreased.

Figure 1 shows the index points contribution to the overall CPI change for the items that increased in price, and those that decreased in price over the period.

Figure 1

In the December 2009 quarter, the overall upward contribution of items that increased in price was 11.3 index points; while the impact of items that decreased in price was -12.9 index points; these resulted in an overall fall of 1.6 index points – a 0.2 percent decrease in the CPI. The largest individual downward impact came from lower vegetable prices, which fell 17.6 percent. While the downward contribution from items that fell was slightly larger than usual, the downward contribution of items that increased in price was at its lowest level over the 14-quarter comparison. The largest individual upward contribution came from a 13.9 percent increase in international airfares, which usually rise in December quarters.

Interestingly, on the recent occasions in figure 1 that the CPI recorded a negative movement, these were largely due to the impact from items that fell in price, rather than from the more muted impact from items that increased in price. In the December 2008 quarter, petrol prices fell strongly (down by nearly one-quarter) coupled with a 16 percent fall in vegetable prices. The fall in vegetable prices was partly seasonal, with prices also coming off higher levels from unseasonal weather affecting prices in the previous quarter. In the December 2006 quarter, the large downward contribution also came from lower petrol prices (down 15.2 percent).

The large rise in the September 2009 quarter was due to the large impact from items that rose in price, and the very muted impact from items that fell in price. Individually, there were no items that fell significantly, while there were strong increases recorded for vegetables, international airfares, local authority rates, alcoholic beverages, and vehicle relicensing fees.

Two large impacts from items that rose in price can be seen in the June and September 2008 quarters, which were both affected by petrol prices rising to historically high levels in July 2008.

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