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Running hot and cold: Tracking non-alcoholic beverage prices in the CPI

This article looks at how prices for non-alcoholic beverages have changed over time, based on information collected for the consumers price index (CPI).

Introduction

Non-alcoholic beverages are long-standing items in the CPI basket, around since 1949. At that time, a 10-ounce (oz) bottle of aerated water, a 1-pound (lb) packet of tea, a half-lb packet of drinking chocolate, and a 1lb jar of coffee were tracked for the CPI.

The CPI basket's composition has evolved over time, reflecting the emergence of new products and changes in household spending patterns. In 1965, fruit juice was added to the basket and at the 1999 CPI review energy drinks were also added. The latest change was made at the 2006 CPI review, when mineral water was added to the basket.

Position in the CPI structure and relative importance

The non-alcoholic beverages subgroup of the New Zealand Household Expenditure Classification represented 10.22 percent of spending on the CPI food group at the June 2008 quarter. Within this subgroup, the ‘soft drinks, waters, and juices’ class represented 8.30 percent, and the ‘coffee, tea, and other hot drinks’ class accounted for 1.92 percent.

'Coffee, tea, and other hot drinks’ captures only packaged coffee, tea, and powdered hot drinks, but ‘soft drinks, waters, and juices’ includes packaged and poured soft drinks, bottled water, packaged juice (shelf-stable and chilled), powdered cold drinks, and energy drinks. While the non-alcoholic beverages subgroup includes poured soft drinks, it does not include other freshly served takeaway or dine-in drinks, such as milkshakes, hot coffee, or hot tea. They are included in the restaurant meals and ready-to-eat food subgroup.

Carbonated soft drink production began in New Zealand in the 1840s and by 1918 there were 164 factories across the country. By the 1960s, only seven companies survived, including Foxton Fizz, Innes, Grey and Menzies, Schweppes, Thompson's, and Ballins. Together they owned 22 factories. Coca Cola was imported ready-made and first sold in New Zealand in 1939, and made locally from imported concentrate after 1944 (see Te Ara, The Encyclopedia of New Zealand).

Energy drinks, introduced to the basket in 1999, include spending on sports drinks such as Powerade and energy drinks such as ‘V’, which was launched in 1997.

Figure 1 shows the relative importance of non-alcoholic beverages in the CPI food group from the March 1949 quarter to the June 2008 quarter. Their weighting nearly doubled over this time, up from 5.84 percent to 10.22 percent.

Figure 1
Graph, Relative weights of non-alcoholic beverages in CPI food group, weights from each CPI review from 1949.


Price comparison

Looking at the non-alcoholic beverage items in the CPI basket in 1949 and in February 2011 (see Food Price Index: February 2011), not only have prices changed, but so have the container sizes the beverages are sold in.

In 1949, the 10oz (around 285ml) bottle of aerated water cost about 5.5 pence. In today's terms, after allowing for general food price inflation, this is equivalent to $1.60 in the December 2010 quarter. In today’s CPI basket, a 1.5 litre bottle of soft drink had an average retail price of $2.28 (February 2011).

A 1lb jar of coffee (about 450g) averaged around 4 shillings and 7 pence in 1949. This is equivalent to around $16.00 (or $3.55 per 100g) in the December 2010 quarter. Today, 100g is the standard size of instant coffee packets tracked in the CPI. The average price was $5.68 in February 2011.

A 1lb pack of tea was around 4 shillings and 3 pence in 1949. This is equivalent to around $15.00 in the December 2010 quarter. Nowadays tea is usually purchased as teabags and packed as 20, 50, or 100 per box. The average price for a box of 100 (about 200g of tea) was $4.28 in February 2011.

Added to the basket in 1965, a 20oz (around 570ml) tin of fruit juice averaged around 2 shillings. In the December 2010 quarter this is equivalent to around $3.50 (or $6.10 per litre). In February 2011, a 1-litre carton of fruit juice sold in supermarkets for an average price of $1.92 (based on the cheapest available apple-based juice at the time of price collection).

Price movements

Figures 2 and 3 show the price movements of different non-alcoholic beverages between the March 1981 and December 2010 quarters. Tea prices rose more than all other non-alcoholic beverages (up 316 percent), while soft drink prices (up 113 percent) rose significantly less than overall food prices (up 275 percent). The annual average increases for tea, soft drinks, and food were 4.9 percent, 2.6 percent, and 4.5 percent, respectively.

Figure 2
Graph, Non-alcoholic beverage prices (hot drinks), March 1981–December 2010 quarters.


Between the December 1983 quarter and the March 1985 quarter, tea prices rose 69.0 percent. This rise reflected a shortage of raw tea in the world market in 1984 because production did not keep up with the increasing demand for tea. Also, the 20 percent devaluation of the New Zealand dollar in 1984 contributed to higher import prices for tea.

Drinking chocolate prices rose 287 percent between the March 1981 and December 2010 quarters, showing a similar movement as overall food prices. Coffee prices were quite volatile over the 30-year period, up 226 percent in total.

Drinking chocolate prices increased  21.6 percent between the June 2008 quarter and the June 2009 quarter, reflecting a poor cocoa harvest in Ivory Coast, which supplies around 40 percent of the world's cocoa beans.

Between the June 1994 quarter and the June 1995 quarter, coffee prices jumped 64.4 percent, largely due to a sharp frost in Brazil that destroyed part of the coffee harvest. Drinking chocolate and coffee had annual average increases of 4.7 percent and 4.1 percent, respectively, over the 30-year period.

Fruit juice prices (up 199 percent from the March 1981 to the December 2010 quarter) showed a smaller price increase than the overall food group. On average, fruit juice prices increased 3.7 percent per year.

Figure 3
Graph, Non-alcoholic beverage prices (cold drinks), March 1981–December 2010 quarters.


Since being introduced to the CPI basket in 1999, prices for energy drinks have been quite steady, with a 16.3 percent rise from the June 1999 quarter to the December 2010 quarter, giving an annual average increase of 1.3 percent.

How non-alcoholic beverage prices compare relative to the CPI food group is shown in figures 4 and 5. An index number above 1000 means beverage prices have risen faster than food prices. An index number below 1000 means beverage prices have decreased relative to food prices.

Coffee and drinking chocolate prices have broadly risen in line with the overall food group over the 30-year period, although at times they rose or fell relative to food prices. Tea prices rose faster than food prices and other non-alcoholic beverage prices.

Figure 4
Graph, Non-alcoholic beverage prices (hot drinks) relative to food prices, March 1981–December 2010 quarters.


Soft drinks and fruit juice have fallen in price relative to the overall food group price index. This was particularly evident for soft drinks from the mid-1980s to the mid-1990s. From the September 1986 quarter to the June 1995 quarter soft drink prices fell by nearly half (46 percent) relative to food prices. Energy drinks have fallen in price relative to the food group since being introduced to the basket in 1999.

Figure 5
Graph, Non-alcoholic beverage prices (cold drinks) relative to food prices, March 1981–December 2010 quarters.

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