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Price Index News: April 2014

1. Short stories

A potted history of gardening in the New Zealand CPI

A potted history of gardening in the New Zealand CPI looks at the history of gardening items in the consumers price index (CPI) basket, current spending patterns on gardening supplies, and the changing cost of maintaining a garden relative to the CPI.

New CPI visualisation tool

We have a new interactive Consumers price index visualisation tool to help you to explore the changes in price and relative importance of goods and services in the CPI basket.

The tool's interactive pie chart allows you to drill down from the all groups CPI to more than 100 basket subcategories including restaurant meals, electricity, petrol, and international air fares. The longer the slice the larger the percentage increase and the wider the slice the more important the subcategory is in the overall index.

When you open the CPI visualisation, you will see a brief description of how to use it. For further details, click on the visualisation's 'help' link or see Help using CPI visualisation.

You can also download the CPI data in CSV format from the link at the top right of the visualisation webpage.

The CPI visualisation will be available with the latest figures, for the March 2014 quarter, when the CPI is released on 16 April.

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2. Working with others

Using big data to measure price change – collaborations, research, and developments

Compiling price indexes from 'big data', such as scanner data and web-scraped online data, presents particular methodological challenges for price measurement.  We have been researching this area for the past five years.

Putting scanner data for consumer electronics into the CPI

Many products have their barcodes scanned when they are purchased. This retail transaction data – or 'scanner’ data – records prices, quantities sold, and associated information for all transactions across the full reference period. We are now being supplied with scanner data from market research company GfK for a range of key consumer electronics products, such as televisions and computers. We intend to use this scanner data in the CPI from the September 2014 quarter, using the imputation Tornqvist rolling year GEKS (ITRYGEKS) method we developed with Statistics Netherlands. This method incorporates statistical models to adjust the measurement of price change appropriately for the changing mix of characteristics of the products being bought by consumers. We will be leading international practice in making such comprehensive use of consumer electronics scanner data in our CPI.

Paper on new methodology to be presented in Geneva

Prices senior researcher Frances Krsinich will present a paper at the UNECE/ILO meeting of the group of experts on consumer price indices in Geneva this May. Her paper is called "Fixed-effects with a window splice: quality-adjusted price indexes with no characteristic information". It describes the approach Statistics NZ is considering to estimate quality-adjusted price indexes from scanner data and online data where there is no information available on product characteristics. In this situation explicit quality adjustment with methods such as the ITRYGEKS methodology mentioned above, cannot be used.

The paper shows that the relatively simple fixed-effects (or time-product dummy) index is equivalent to a fully-interacted time dummy hedonic index based on all price-determining characteristics of the products, despite those characteristics not being observed. In production, this can be combined with a modified approach to splicing that incorporates the price movement across the full estimation window to reflect new products with one period’s lag, without requiring revision of previously published movements.

Collaboration with US researchers on online data methods

The Billion Prices Project @ MIT is an academic initiative that uses prices collected daily from online retailers around the world to conduct economic research. We have recently gained access to some New Zealand consumer electronics online data from the Billion Prices Project to explore methods for producing quality-adjusted price indexes. The lack of information on characteristics in the data makes quality adjustment challenging, but we've been able to make good use of our recent work in applying fixed-effects regression models to exploit the longitudinal nature of the data for quality adjustment. This collaborative research will help to inform understanding of methods for quality-adjusting price indexes from online data.

Collaboration on theoretical work with Statistics Netherlands

We have contributed empirical results, based on the New Zealand consumer electronics scanner data from market research company GfK, to a recent paper by Jan de Haan of Statistics Netherlands. The paper "Time dummy hedonic and quality-adjusted unit value indexes: do they really differ?" places the hedonic approach to quality-adjusted price indexes in an econometric context. Jan de Haan will be presenting this paper at the inaugural conference of the Society for Economic Measurement in Chicago this August.

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3. Nuts and bolts

Veterinary services in the CPI 

In Veterinary services in the CPI, we explain the sources and methods used to compile the veterinary services class of the consumers price index (CPI).

Purchase of housing and rentals in the CPI

Purchase of housing and rentals in the CPI provides an overview of purchasing a new house and renting a house in the CPI.

Pet-related products in the CPI

Pet-related products in the CPI explains the sources and methods used to compile the pet-related products class of the CPI.

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4. On the horizon

Excise duty increase for cigarettes and tobacco 

Each year, the government adjusts excise duty on cigarettes and tobacco. The latest update was on 1 January 2014, when excise duty increased 11.28 percent. The increase was based on a 1.28 percent rise in the 'CPI less credit services' index between the September 2012 and September 2013 quarters. The January rise also included a fifth successive 10 percent increase – as set out in the Excise and Excise-equivalent Duties Table (Tobacco Products) Amendment Order 2013.

The consumers price index (CPI) for the March 2014 quarter (released 16 April) will show how the excise increase affected retail prices for cigarettes and tobacco. The price change shown in this quarter’s CPI should fully reflect the excise increase, depending on the timing of price rises in stores and when Statistics NZ staff collected prices.

The excise duty is now 54.539 cents a cigarette, up from 49.011 cents a cigarette in 2013.

In the December 2013 quarter, excise duty made up just over two-thirds ($12.25) of the price of a packet of 25 cigarettes (before GST). A packet of 25 cigarettes cost $20.80 (including GST) in that quarter.

Excise duty increases for cigarettes and tobacco

Date

Excise duty
(cents per cigarette)

Increase
(percent)

1 Jan 2009

30.955

5.07

1 Jan 2010

31.443

1.58

29 Apr 2010

34.587

10.00

1 Jan 2011

38.614

11.64

1 Jan 2012

44.210

14.49

1 Jan 2013

49.011

10.86

1 Jan 2014

54.539

11.28

Note: On 29 April 2010, excise duty on cigarettes rose 10 percent, while excise on tobacco rose 25.4 percent (tobacco first increased 14 percent and then another 10 percent).

Cigarette and tobacco prices increased 11.63 percent between the December 2012 and December 2013 quarters. This includes the excise duty increase in January 2013.

Education fees in the CPI

In the March quarter CPI of each year, which coincides with the start of the academic year, we show price changes in:

  • tertiary education fees
  • adult and community education fees
  • school fees, donations, and uniform prices.

 

Celebrating 100 years of CPI

This July, the consumers price index (CPI) turns 100 and we'll be celebrating this when the June 2014 quarter CPI is released. Records of retail prices exist from as early as 1891, but the first official all-groups CPI figure is for the June 1914 quarter.

What we include in the CPI basket has changed considerably over the past 100 years. In 1914, we collected prices for sago, tapioca, treacle, starch, tinned herring, and tripe. Items like flour and sugar are still part of the CPI basket, but these came in very different sizes. Households typically bought flour in bags weighing the equivalent of 11 kilos, while sugar came in even larger 25-kilo bags – today people typically buy these in 1.5-kilo bags.

The First World War also began 100 years ago and then there were just over a million people living in New Zealand, compared with 4.5 million now.

Stay tuned for the July issue of Price Index News, which will look back over the past 100 years of the New Zealand CPI.

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5. Development updates

CPI Advisory Committee 2013 – next steps

In July 2013, we released the Report of the Consumers Price Index Advisory Committee 2013. The committee met in early May 2013 to undertake an independent review of the methods and practices used to compile the CPI.

The report includes the committee’s 16 recommendations. They endorse the current practices used to compile the CPI, and recommend ways the CPI can be further enhanced. See the report for more information.

The committee asked us to consult further on some of the recommendations. In February 2014 we released Public consultation on CPI Advisory Committee 2013 recommendations to inform public consultation on the committee’s recommendations.

The consultation covered six topics:

  1. Does New Zealand need a monthly CPI?
  2. Which regions should we collect CPI prices from?
  3. Should we produce price indexes for particular groups of households?
  4. Should we produce a seasonally adjusted analytical CPI series?
  5. Should we produce indexes that compare price levels of different regions at a single point in time?
  6. Should the scope of the CPI be extended to include overseas purchases by New Zealand households when travelling abroad?

Submissions closed on 14 March. We received about 25 submissions in total. We are continuing to consult on price indexes for particular groups of households, and we welcome any further submissions on this topic.

We will use the feedback we have received to prioritise the committee’s recommendations.

Most submissions we received broadly supported recommendation 7:

That Statistics NZ reduces the number of regional pricing centres in which price collectors visit retail outlets from 15 currently, to between 10 and 12, in order to fund other CPI-related initiatives such as:

  • improving the sample design and collection methods of the Household Economic Survey
  • producing indexes for population subgroups
  • producing seasonally adjusted analytical CPI series
  • assessing the feasibility of, and interest in, regional-spatial indexes.

To make a submission on the topic of price indexes for particular groups of households, or for further information, please contact:

Nick Martelli or Alan Bentley
Wellington
0508 525 525 toll-free
Email cpireview@stats.govt.nz with ‘CPI 2014 user consultation’ in the subject line.

Annual update of producers price index weights

The producers price indexes (PPIs) that we produce are used as deflators in calculating gross domestic product (GDP). These deflators are used to remove the effect of price change so that change in the volume of goods and services produced in the economy can be measured.

The PPIs are also used as an inflation measure and in contract indexation; for example, to reflect changes in prices during the life of a commercial project.

We update the PPI industry and commodity weights annually to help maintain the relevance of this index. The weights come from the supply and use tables (SUT) produced annually as part of the New Zealand System of National Accounts. These updates reflect changes in economy-wide income and expenditure, in particular the mix of products and the mix of industries. We re-weight the industries at the New Zealand Standard Industry Output Categories level 4 and above (there are 118 level 4 industries).

We introduced the latest weights in the March 2013 quarter’s PPI, based on 2009/10 SUT. These were first used to weight price movements from the December 2012 quarter to the March 2013 quarter. Our next reweight will be in the March 2014 quarter, which will be published on 19 May 2014. These new weights are based on 2010/11 SUT.

We are also updating the lower-level commodity indexes and product samples. This work is part of reviewing the business price indexes.

Reviewing the business price indexes

We are continuing our rolling review of the business price indexes – the producers price index (PPI), the farm expenses price index (FEPI), and the capital goods price index (CGPI). The review has two objectives: to maintain the relevance of these indexes and to collect commodity data for use in the national accounts.

We are surveying a sample of economically significant enterprises operating in New Zealand, to collect information on their supply and use of goods and services (commodities). We use information from the commodity data collection to balance the production and expenditure estimates of gross domestic product (GDP), within an input-output framework. Doing this requires us to compile tables that detail the supply and use of commodities, by industry.

We also use this commodity information (by industry) to update lower-level weights for the business price indexes. These are used as deflators in producing a chain-volume measure of GDP.

We carried out the previous PPI redevelopment from 2004 to 2010. The current rolling review is the first to use the Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06). As part of the review, we prioritised the ANZSIC06 industries and are reviewing them on eight-year cycles for most industries, and on four-year or 12-year cycles for those remaining.

Currently, we are reviewing these industries:

  • agriculture (including FEPI)
  • forestry and logging
  • aquaculture and fishing 
  • hunting and trapping
  • agriculture, forestry, and fishing support services
  • meat and meat product manufacturing
  • seafood processing
  • dairy product manufacturing
  • fruit, oil, cereal, and other food product manufacturing
  • petroleum and coal product manufacturing
  • basic chemical and basic polymer manufacturing
  • fertiliser and pesticide manufacturing
  • pharmaceutical, cleaning, and other chemical manufacturing
  • beverage and tobacco product manufacturing
  • transport equipment manufacturing
  • electronic and electrical equipment manufacturing
  • machinery manufacturing
  • telecommunication services
  • Internet service providers and data processing services
  • computer system design and related services
  • rail, water, air, scenic and sightseeing transport.

We have completed reviews and also implemented lower-level PPI commodity weights and updated product samples for the following industries:

  • printing and publishing
  • primary metal and metal product manufacturing
  • fabricated metal product manufacturing
  • electricity, gas, and water.

We will be implementing lower-level PPI commodity weights and updated product samples in the March 2014 quarter for the agriculture input indexes (including FEPI).

We will be implementing lower-level PPI commodity weights and updated product samples for the following industries in the June 2014 quarter:

  • forestry and logging
  • aquaculture and fishing 
  • hunting and trapping
  • agriculture, forestry, and fishing support services
  • petroleum and coal product manufacturing
  • basic chemical and basic polymer manufacturing
  • fertiliser and pesticide manufacturing
  • pharmaceutical, cleaning, and other chemical manufacturing
  • transport equipment manufacturing
  • electronic and electrical equipment manufacturing
  • machinery manufacturing
  • rail, water, air, scenic, and sightseeing transport.

Other industries to have lower-level PPI commodity weights and updated product samples will be after the June 2014 quarter. We will publish an updated list of these industries in Price Index News.

For more information about the rolling business price index review, please contact:

James Griffin
Wellington 04 931 4600
Email: info@stats.govt.nz

Producers price index review of scope and purpose

We are reviewing the scope and purpose of the producers price index (PPI).

The PPI is a key economic indicator in most countries, including New Zealand. PPIs are constructed as either output indexes, measuring change in the prices that producers receive for their outputs; or input indexes, measuring change in the prices that producers pay for their inputs, excluding labour and capital.

The PPIs we produce are used as deflators in calculating gross domestic product (GDP). These deflators are used to remove the effect of price change so we can measure change in the volume of goods and services produced in the economy. The PPIs are also used as an inflation measure and in contract indexation; for example to reflect changes in prices during the life of a commercial project.

We have produced our PPIs in their current form for the past 30 years. Over this time the indexes have been re-weighted and re-referenced several times. However, the underlying conceptual basis and coverage have remained largely unchanged.

In our recent  review discussion paper we consulted PPI users and are currently considering the feedback we received.

Key issues covered in the review include:

  • principal purpose of the PPI
  • weighting and pricing basis used
  • transactions that are in the PPI’s scope
  • industry and commodity detail and frequency
  • index formula
  • dissemination options.

We will have an update in Price Index News about the outcomes of the consultation, and any changes we will be making to the PPI.

For more information about the rolling business price index review, please contact:

James Griffin
Wellington 04 931 4600
Email: info@stats.govt.nz

Labour cost index review

We are reviewing the labour cost index (LCI) weights. The LCI measures changes in wage rates and non-wage labour costs.

The review will help maintain the relevance of the LCI – to ensure it reflects the current industry and occupation structures of the labour market.

Price indexes quickly lose relevance if not reviewed, which would undermine the fit-for-purpose quality not only of the indexes, but also of the wider macro-economic statistics system. The LCI is used as a deflator in the calculation of gross domestic product. It is also used by the business community in wage negotiations and contract indexation clauses. Government agencies such as the Reserve Bank and The Treasury use the LCI to monitor and forecast wage inflation.

The 2013 Census is a key data source for the review. Other important data sources include Statistics NZ's Business Frame (a register of New Zealand businesses), the Labour Cost Survey, the Quarterly Employment Survey, and linked employer-employee data.

The review will be based on the existing industry and occupation groups – the New Zealand Standard Industrial Output Categories and the Australian and New Zealand Standard Classification of Occupations, respectively. We will refresh the sample of jobs being tracked as part of the review, to reflect relative growth and decline in occupations and industries.

Recent work on the review has focused on analysing the 2013 Census and reviewing the surveyed positions to ensure the LCI sample adequately represents the current labour market. We will refresh the sample of jobs to reflect growth and decline in occupations and industries.

The first release of the reweighted indexes will be for the September 2014 (salary and wage rates) and June 2015 (non-wage labour costs) quarters.

For further information about the LCI review, please contact:

Ludeth Mariposa
Wellington 04 931 4600
Email: info@stats.govt.nz

CPI review update

In June 2013 we began a review of the consumers price index (CPI). Regular CPI reviews are carried out every three years to help ensure that the CPI basket of goods and services continues to reflect household spending patterns.

The CPI is made up of a representative ‘basket’ of goods and services purchased by New Zealand households. As part of the review, the relative importance of these goods and services will be updated, using information from the 2012/13 Household Economic Survey (HES) and other sources. We will also reselect the goods and services that are included in the basket.

Some of the 2013 CPI Advisory Committee’s recommendations will also be implemented in the review.

We’ll complete the latest review when the September 2014 quarter CPI is published in October 2014.

The previous CPI review used information from the 2009/10 HES, and was implemented when the September 2011 quarter CPI was published in October 2011. Before the 2011 review, New Zealand had entered a six-quarter recession that began in the March 2008 quarter. This recession influenced household spending, and was reflected in the reviewed CPI.

Changes to the CPI basket in the 2011 review showed a continuing shift in household spending towards the latest technology – goods such as tablets, external computer hard drives, e-books, and digital movie downloads were added to the CPI basket. Dictionaries and envelopes were two of the goods removed from the basket.

For more information on the 2014 CPI review please contact:

Nick Martelli
Wellington
04 931 4600

Review of the farm expenses price index

In the March 2014 quarter we will implement changes resulting from our review of the farm expenses price index.

As part of our rolling review of the business price indexes (BPI) we have been reviewing the farm expenses price index (FEPI). The primary purpose of this review is to ensure the index remains relevant and fit for purpose. This process included:

  • reviewing the farm types and input type breakdowns we produce
  • updating the expenditure weights used to aggregate prices
  • reviewing the products we collect prices for.

This review included consultation with many different organisations, including Dairy New Zealand, Beef + Lamb New Zealand, and Federated Farmers.

We investigated a wide range of data sources, including data available within Statistics NZ. We collected data from over 20 industry organisations, and sent surveys to farms where no other data sources were available.

We’ve also changed the FEPI structure within our internal calculation systems, so that we create closer links with the producers price index (PPI) structure. This means that as the BPI rolling review continues, we will review some of the lower-level FEPI weights and prices, so they continue to remain relevant.

Summary of key changes

Farm type changes

In response to customer and stakeholder requests, we will make the following changes to the published index farm types:

  • ‘sheep and beef farms’ will be replaced by ‘sheep, beef, and grain farms’
  • ‘cropping and other farms’ will be replaced by ‘poultry, deer, and other livestock farms’.

These changes will mean that the FEPI will use the New Zealand Standard Industrial Output Classification (NZSIOC). This will align input and output PPIs for agriculture, as the PPI output indexes already use the NZSIOC classification, and enable direct comparison between changes in input and output prices for the agriculture industry. 

The indexes for ‘sheep and beef farms’, and ‘cropping and other farms’ that we previously published will continue to be available on Infoshare. This means that the indexes we previously published will continue to be available in the future.

Expenditure category changes

In response to customer and stakeholder requests, we will also be publishing additional input types within each farm type.

For all farm types:

  1. Fertiliser, lime, and seeds will be divided into three separate input types:
    • fertiliser
    • lime
    • seeds.
  2. A miscellaneous expenditure category will now be included in each farm type.
  3. Feed, grazing, cultivation, and harvesting will be renamed in each farm type. The new names will better describe the relevant expenditures in each farm type. This is only a change in the input type names; their scope remains the same.

For dairy cattle farms:

  1. Animal health and breeding will be divided into two separate input types:
    • animal health
    • breeding.
  2. Feed, grazing, cultivation, and harvesting will be divided into two separate input types:
    • cultivation, harvest, and purchase of animal feed
    • stock grazing.

Note that the aggregated expenditure category indexes will continue to be available on Infoshare.

Concept changes and clarifications

Insurance

We investigated the possibility of using gross insurance weights (premiums). However, the farm expenses price index is used in the National Accounts, and it is important to maintain consistency with the treatment used in the National Accounts. Therefore, the weights for insurance in the farm expenses price index will continue to use the net value for insurance.

Weights for insurance in the consumers price index and producers price index are calculated on a ‘net basis’ (premiums less claims). This treatment is consistent with the National Accounts, where services provided by insurance companies are considered to be the management of insurance, and claims are treated as a transfer between households and businesses. It is also consistent with recommendations in the Producer Price Index Manual: Theory and Practice (published by the International Monetary Fund) and accepted as the international standard for producer price indexes.

Interest

The FEPI interest rates input type currently measures changes in nominal interest rates. This method does not take into account the changing purchasing power of the value borrowed. This means that if more debt is required over time to buy the same piece of land (as the price of the land increases) interest expenses would increase while the interest rate index in FEPI would not show that increase.

Respondents have asked that we continue to use nominal interest rates for FEPI. A primary reason for this is because FEPI is used as an indication of individual costs, and once an individual has purchased a farm and taken on a certain level of debt then only the interest rate is relevant to them. As the land price increases it does not affect the level of debt of the individual farmer.

The weight for interest rates used in the FEPI will reflect the total amount paid by farmers in interest payments.

Therefore, we will continue to measure change in interest rates in FEPI, and the weight for this index will reflect the total amount paid in interest by farmers.

For further information contact:

Erica van Essen
Wellington 04 931 4600
Email: info@stats.govt.nz

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6. Release dates

Price index release calendar for the next three months

April 2014

Fri       11 Apr 14          Food Price Index: March 2014
Wed    16 Apr 14    M   Consumers Price Index: March 2014 quarter

May 2014

Wed     7  May 14   M    Labour Cost Index (Salary and Wage Rates): quarter
Tue     13 May 14          Food Price Index: April 2014
Mon    19 May 14   M     Producers Price Index: March 2014 quarter
Mon    19 May 14   M     Capital Goods Price Index: March 2014 quarter
Mon    19 May 14           Farm Expenses Price Index: March 2014 quarter – tables

June 2014

Tue      3  Jun 14    M    Overseas Trade Indexes (Prices): March 2014 quarter (provisional)
Tue      3  Jun 14    M    Overseas Trade Indexes (Volumes): March 2014 quarter (provisional)
Thu     13 Jun 14           Food Price Index: May 2014

M= Media conference

This issue of Price Index News was released on Tuesday 8 April 2014.

ISSN 2350-3092

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