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Printable version
Key Statistics - article, December 1999, p. 11-13
Explains how the review of the Consumer Price Index has resulted in updating of the basket of goods and services to ensure the index represents current household expenditure patterns.
CPI rebase1
The Consumers Price Index (CPI) has been reviewed and now has a new expression base of June 1999 quarter = 1000. The September 1999 quarter CPI is the first quarter to be released on the new base. As part of the review, which traditionally takes place about every five years, the basket of goods and services has been updated to ensure that the index represents current household expenditure patterns. The most significant difference in the regimen items from the December 1993 quarter base to the June 1999 quarter base is that the new base does not include interest charges or residential sections. Other new items include Internet and cell phone charges, bank charges, and telephone purchases. In future, reviews of pricing indicators, weights below section level and outlets will occur throughout the next three years and any changes will be detailed in the technical notes of the quarterly Hot Off The Press.
Calculation of CPI relative expenditure weights
The relative expenditure weights which make up a price index show the importance of each item in the basket of goods and services in the index regimen. The weights for the CPI expenditure basket are derived principally from the Household Economic Survey (HES). This estimate of gross expenditure by all New Zealand households is adjusted prior to the calculation of the index weights for a number of reasons.
Not all the expenditure recorded in the HES is included in the weight calculation. Some expenditure is outside the scope of the CPI, eg investments. Other expenditure relates to items for which price change is too difficult to measure, eg gambling. Sales and purchases between households are also excluded as they are assumed to be equal and therefore netted out for the total household sector as a whole. Purchases of existing houses are treated using this method.
Not all HES data is suitable for the purpose of establishing the CPI weights. The purchase and construction of new dwellings by private households does not occur frequently enough for the HES to provide reliable estimates of expenditure. Weights for the items related to purchase and construction of new dwellings are derived from an independent survey of dwellings built. As the HES only includes spending by household members aged 15 years and over, the purchase of sweets and soft drinks are likely to be underestimated. Data from industry sources is used to provide better estimates in these cases, as well as for other items which may be understated in the HES such as tobacco and alcohol.
A number of categories in the HES are not specific enough to directly allocate the expenditure to one of the approximately 700 goods and services priced in the CPI, eg the HES recorded an aggregate annual expenditure of $63 million on “ready-to-eat foods not otherwise defined”. To ensure all relevant expenditure is captured for the CPI weights this type of expenditure is allocated to the other ready-toeat food items such as takeaway chicken, fish and chips and hamburgers.
Payments received by households are deducted from the relevant expenditure in the HES, eg health insurance refunds of medical practitioners’ fees of $52 million were deducted from medical practitioners’ fees of $299 million.
Since the HES is conducted throughout the survey year and collects some information on purchases from the previous year, the expenditure was scaled to the base period (June 1999 quarter). The weights in the rebased CPI regimen represent the quantities bought in the 1997-98 HES year expressed in June 1999 quarter prices.
The weights for the Food Price Index reflect the relative proportion of expenditure by private households on goods and services for the June 1999 month. Therefore the weights for the monthly Food Price Index (base June 1999 month = 1000) may differ from those in the Food group in the CPI.
Rebasing previously published index numbers
Although the expression base of the CPI has changed to June 1999 quarter = 1000, the percentage changes released prior to the base period will not alter, eg in the September 1998 quarter the Housing group fell 0.4 percent compared with the June 1998 quarter. Although the index numbers have been re-expressed so that the June 1999 quarter = 1000, the percentage movement in the Housing group between the two quarters is still 0.4 percent.
The previously published movements are preserved by increasing the number of significant figures stored for periods before the June 1999 quarter rebase. The new base period is called the expression base and is set to 1000, ie the published index number for the June 1999 quarter is set to 1000. The June 1999 quarter index number on the 1993 expression base is 1097. The ratio 1000/1097 is then applied to all of the previous index numbers ensuring that the percentage movements between quarters and years will remain the same. When an expression base is changed, percentage movements which use index numbers for periods prior to the rebase must be calculated using unrounded index numbers for those periods.
Calculation of price change
Prices are collected by either field collection, postal collection or via the Internet and continue to cover 15 urban areas where almost 70 percent of New Zealand’s population live. The regions are Whangarei, Auckland, Hamilton, Tauranga, Rotorua, Napier-Hastings, New Plymouth, Wanganui, Palmerston North, Wellington, Nelson, Christchurch, Timaru, Dunedin and Invercargill. These prices are then either simply averaged or weighted together using outlet weights.
Outlet weights are used in the CPI to show the relativities between the market share of outlets where prices are collected. Currently, outlet weights are used in the Food group and nonfood groceries to reflect the expenditure weight between supermarkets and convenience stores and between each supermarket chain. These are updated annually as part of the annual review. Outlet weights are also used in many postal surveys such as the Purchase and Construction of New Dwellings survey to reflect the market share of the respondents.
New outlet weights have been introduced at the rebase to reflect the market share of personal and health care products in department stores and chemists, and for cigarettes purchased in supermarkets and convenience stores.
Population weights
In the CPI, population weights are used to aggregate regional average prices to the New Zealand level. The population weights have been updated in 1997 and 1998 and at the rebase using population estimates based on the 1996 Census of Population and Dwellings. The 1993 population weights were based on 1991 Census of Population and Dwellings data.
Since the 1993 base period, a number of changes have occurred in the New Zealand resident population. The population weights for the 15 CPI regions were reviewed taking into account the availability of retail services, community of interest and geographical ease of access. The most significant change is that the weight assigned to Rotorua has fallen while the weight for Tauranga, Hamilton and Auckland has increased significantly. Tauranga now has a larger population than Dunedin and is now the sixth largest town. In contrast, all the major South Island regions apart from Christchurch have declined over the five-year period.
INFOS
The rebased index series (June 1999 quarter = 1000) are available on Infos. The Housing and Credit Services groups are only available at the national level because a significant proportion of these groups are calculated to provide national average prices rather than regional average prices.
CPIRebase.pdf (16Kb)
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Consumer Spending
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