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Price Index News: July 2010

1. Short stories

Fifty years of television in New Zealand

Watching television has been a part of New Zealanders' lives for the five decades since the first broadcast on 1 June 1960. For most of that time, the consumers price index (CPI) has tracked changes in the price of buying and hiring television sets, buying television licences, and subscribing to pay television. To recognise 50 years of television in New Zealand, Statistics New Zealand has updated and re-published Fifty years of television in New Zealand, an article that examines changes that have been tracked in the CPI since 1965. 

Impact on retail sales when GST started and rose in the 1980s

With goods and services tax (GST) set to rise from 12.5 percent to 15 percent in October 2010, many people want to know how retail sales might be affected before and after the rise. In How GST affected retail sales in the 1980s, we look back at the extent to which consumers brought forward purchases to beat GST-related price rises.

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2. Working with others

Australian consumer price index review

The Australian Bureau of Statistics (ABS) is undertaking a review of the Australian consumer price index (CPI). The review will be implemented when the September 2011 quarter index is released. The review process has included convening an advisory group, publishing an issues paper, holding public forums, and calling for public submissions.

The information paper, released in December 2009, is entitled Issues to be considered during the 16th Series Australian Consumer Price Index Review. Issues considered in the paper include:

  • the main purpose of the CPI
  • the compilation frequency of the CPI
  • an evaluation of the deposit and loans facility index
  • the frequency of CPI weight updates.

 

The Australian CPI, like the New Zealand CPI, is produced quarterly. Other OECD countries produce monthly CPIs. The potential benefits and costs of moving to monthly compilation are being considered as part of the Australian CPI review.

The 16th Series CPI Advisory Group comprises 15 members representing a broad cross-section of users, including Statistics NZ's Dallas Welch (Deputy Government Statistician Macro-Economic and Environment Statistics). The Advisory Group's role is to provide technical advice to the ABS. The group has met twice (in October 2009 and March 2010) and will meet a third time later this year. Dallas Welch attended the first meeting and Statistics NZ's prices manager Chris Pike attended the second meeting.

Submissions by organisations and members of the public are available on the ABS website: Submissions to the 16th Series CPI Review.

The previous Australian CPI review was implemented in 2005. Statistics NZ will implement a New Zealand CPI review in 2011, following the previous review implemented in 2008. Statistics NZ convened an advisory committee in 2004, in the lead-up to the CPI review implemented in 2006.

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Reserve Bank's inflation calculator

The Reserve Bank's inflation calculator provides a straightforward way of comparing the purchasing power of money between two dates. The calculator uses the consumers price index (and the food, clothing and footwear, and transport groups of the CPI), the Quotable Value house price index, and Quarterly Employment Survey hourly earnings to adjust monetary values. Using the calculator involves selecting a:

  • category (general CPI, food, clothing, housing, wages, or transport)
  • monetary value (eg $15.00)
  • date that relates to the monetary value above (eg March 2005 quarter)
  • later or earlier comparison date (eg March 2010 quarter).

 

The calculator then provides a monetary value for the comparison date, and additional information such as the total percentage change and the compound average annual percentage change. For the above example, a basket of goods and services that cost $15.00 in the March 2005 quarter would have cost $17.26 in the March 2010 quarter (based on the change in the CPI over the five years), which is an increase of 15.1 percent (or 2.8 percent per year).

More information about the calculator's functionality and uses is available on the Reserve Bank's inflation calculator web page.

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3. Virtual papers

Joint ILO/UNECE consumer price index meeting in May 2010

The Joint United Nations Economic Commission for Europe (UNECE) and International Labour Organisation (ILO) Meeting on Consumer Price Indices (CPI) serves as a forum for discussion of methodological and practical aspects of the compilation of price indices. Through the presentation and discussion of papers and exchange of experiences, the meeting supports the development of internationally accepted standards and methods and their implementation in practice. The meeting, held over three days in May 2010 and attended by Statistics NZ's Daniel Griffiths, discussed a number of substantive topics in areas suggested by the previous CPI meeting and recommended in the programme of work adopted by the Bureau of the Conference of European Statisticians.

The first day of the meeting consisted of parallel workshops on the following topics:

  • the use of transaction or scanner data
  • financial services in the CPI
  • quality adjustment and seasonal products, clothing, and food
  • the harmonised consumer price index (ie CPIs constructed in Euro area countries to compare inflation rates).

 

On the second and third days of the meeting, sessions topics included:

  • house price indexes, including the presentation of the first draft of the planned international Handbook on Residential Property Price Indices
  • CPI user relations and meeting user needs
  • quality adjustment for services, such as telecommunications, health or transport services, or financial and legal services
  • CPIs and globalisation
  • the system of price indexes (CPI, producers price index, purchasing power parity).

 

Statistics NZ presented two papers. The first paper provides a stocktake of the different House price measures available in New Zealand and Australia. The second details Statistics NZ's efforts to engage with users and meet their needs, including the creation of the alternative dissemination channel provided by the Price Index News.

See the UNECE website for the agenda and papers.

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House price measurement in New Zealand and Australia

Building on Statistics NZ's work to undertake a stocktake of House price measurement in New Zealand and a bilateral prices meeting between Statistics NZ and the Australian Bureau of Statistics, the paper House Price Measurement in New Zealand and Australia was recently presented at the joint ILO/UNECE Meeting on Consumer Price Indices.

House Price Measurement in New Zealand and Australia is a stocktake of the different house price measures available in New Zealand and Australia. We summarise the measures according to a number of dimensions – quality adjustment, timing of data, weighting scheme, and coverage – and look at how the measures compare over the short- and long-term.  

Measuring the impact of the emissions trading scheme

Measuring the Impact of the Emissions Trading Scheme in Official Statistics is a discussion paper outlining where and how the impacts of an emissions trading scheme (ETS) in New Zealand will be shown in the current Official Statistics System (OSS), and informs readers about the conceptual options available to measure the ETS. The purchase of emissions units will not directly appear in the current suite of price indexes. Indirect price impacts from the operation of the ETS scheme will be captured, but attributing how much of a price change is due to the operation of the ETS scheme will not be possible.

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4. Nuts and bolts

Education in the consumers price index

The education group had a combined expenditure weight of 1.78 percent in the consumers price index (CPI) at the June 2008 quarter. The sources and methods used to compile the primary and secondary education, tertiary and other post-school education, and other education classes are explained in Primary and secondary, tertiary and other post-school education in the CPI. The sources and methods used to compile the early childhood education class are explained in Early childhood education in the CPI.

Alcoholic beverages and tobacco in the consumers price index

Alcoholic beverages and tobacco in the CPI explains the sources and methods used to compile the alcoholic beverages subgroup and the cigarettes and tobacco subgroup. Alcoholic beverages and tobacco had a combined expenditure weight of 6.76 percent in the consumers price index (CPI) at the June 2008 quarter.

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5. On the horizon

Excise duty increase for cigarettes and tobacco

The first of three rises to excise duty on cigarettes and tobacco came into effect on 29 April 2010, as set out in the Excise and Excise-equivalent Duties Table (Tobacco Products) Amendment Act 2010. The rate of excise on cigarettes rose 10 percent, while excise on tobacco rose 25.4 percent. The Act schedules two further rises of 10 percent for 1 January 2011 and 1 January 2012.

The impact on retail prices of the 29 April excise increases will show in the CPI for the June and September 2010 quarters. As prices are collected monthly, approximately two-thirds of the impact on retail prices will show in the June 2010 quarter CPI and the remaining one-third will show in the September quarter. In May, retail prices for cigarettes rose between 8 and 10 percent, while tobacco prices rose about 20 percent. Within the cigarettes and tobacco subgroup of the CPI, cigarettes account for about two-thirds of the weight.

The 2010 annual indexation adjustment of the excise duty on cigarettes and tobacco had already occurred on 1 January.

New consumers price index exclusion series

With recent changes to the excise duty for cigarettes and tobacco, two new series will be added to the consumers price index (CPI) information release tables 3.01, 3.02, and 3.03 from the June 2010 quarter. These series will be the CPI 'all groups less alcoholic beverages subgroup' and the CPI 'all groups less cigarettes and tobacco subgroup'.

The use of consumers price index series in legislation

The consumers price index (CPI) is used to adjust a host of Work and Income New Zealand payments, including National Superannuation and Veterans Pension; benefits for unemployment, sickness, and domestic purposes; student allowances; and working for families tax credits for each child. A CPI adjustment is also made to income thresholds for eligibility for childcare assistance and the accommodation supplement; income limits for the disability allowance, and income cut-off points for the Community Services Card.

Until recently, the annual adjustment specified in the New Zealand Superannuation and Retirement Income Act (2001) was based on the all groups CPI. With recent changes to excise duty, the Act has been updated to use the CPI less cigarettes and tobacco subgroup for the annual adjustments to be made in 2011, 2012, and 2013. 

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The emissions trading scheme and domestic air transport

The emissions trading scheme (ETS) covers liquid fossil fuels used in New Zealand (ie petrol, diesel, aviation gasoline, jet kerosene, light fuel oil, and heavy fuel oil). Fuel used for domestic air travel is covered by the ETS.

Until recently, participation in the ETS has been voluntary for large users of jet fuel, and these users have been required to report their emissions from 1 January 2010. From 1 July 2010, they are required to cover the anticipated costs of their carbon emissions for the remainder of the year (and then the full calendar 2011 and future years).

The prices collected for domestic air travel enter the CPI in such a way that prices for any given month are for travel approximately one month later. For example, domestic airfares used to calculate the June quarter would be airfares collected in April, May, and June for travel in May, June, and July. As a result, prices for travel in July, which will be included in the June 2010 quarter CPI, will be influenced by the ETS.

Emissions from fuel used for international air transport are not part of the ETS.

For more on the ETS see the climate change information New Zealand website.

Increase in childcare subsidy

On 1 April 2010, the maximum hourly rates for the childcare subsidy Work and Income administers increased by about 2 percent. The increased subsidy rates will have a downward influence on the early childhood education index for the June 2010 quarter CPI.

Changes to the timing of the food price index

The food price index (FPI) has usually been released nine working days after the month, except every third month, when it has been released with the quarterly consumers price index (CPI). For example, the March 2010 FPI was released with the March 2010 quarter CPI, 12 working days after the quarter.

Statistics NZ has reviewed this practice and in future will release each FPI on the ninth working day after the end of the month.

This change will take place for the June 2010 FPI, which will be released on 13 July. The June 2010 quarter CPI will be released on 16 July.

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Possible impact of the rise in GST

The rate of goods and service tax (GST) will rise from 12.5 percent to 15 percent on 1 October. Lifting GST to 15 percent could increase retail prices of goods and services that are subject to GST by 2.22 percent. For example, a product priced at $100 excluding GST currently sells for $112.50. When GST is increased to 15 percent, that product would retail for $115, an increase of 2.22 percent.

Within the consumers price index (CPI), not all goods and services in the basket are subject to GST. Housing rentals, school donations, and credit services are not subject to GST. Those items make up about 9 percent of the CPI, so about 91 percent of the cost of the CPI basket would be directly affected by the change in GST. This, coupled with the 2.22 percent increase in other prices if all of the rise in GST is fully reflected in retail prices, would result in an increase of about 2.0 percent in the CPI.

More on the impact of a rise in GST can be found in the media release Statistics New Zealand clarifies impact of GST on CPI.

Statistics NZ is undertaking work to determine the appropriate treatment of the GST rise in, and possible impacts on, the suite of price indexes Statistics NZ produces.

Considerations for the CPI include the treatment of seasonally available goods and services (such as winter clothing, for which prices are collected only when items are widely available during the season), and the treatment of goods and services where prices are set for the coming year (such as local authority rates, education, and insurance). The rise in GST for seasonally available goods and services in the CPI basket will be reflected when prices are next collected. For instance, prices for winter seasonal clothing will next be collected in the June 2011 quarter. Issues relating to situations where prices are set for the coming year with some households paying the annual fee and some paying instalments during the year will be addressed by the newly established GST Advisory Panel set up by Revenue Minister Peter Dunne. The next issue of the Price Index News will detail the impact on the CPI basket, including the weight of those items affected.

For the producers price index (PPI) – inputs and outputs, capital goods price index, and farm expenses price index, prices for most goods and services exclude GST. However, in industries where output prices are exempt supply, such as finance, life insurance, and rental of residential properties, these industries pay GST on their inputs. So, while most indexes will not be directly affected by the increase in GST, there will be some impact on the inputs indexes for these industries.

The labour cost index (LCI) for salary and wage rates will be unaffected, as salaries and wages do not incur GST. However, the non-wage component of the LCI includes three costs that are subject to fringe benefit tax (FBT). Two of the three taxable values reported for these non-wage costs (medical insurance and motor vehicles available for private use) incur GST, while the other is exempt (low interest loans). For the calculation of the non-wage indexes, Statistics NZ excludes GST from the taxable values reported by respondents, so there will be no direct impact from the increase in GST.

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Alternative way to access Price Index News articles 

Four links are available on the Price Index News home page:

 

These links will take you to an archive of articles from past issues of the newsletter. To find previous CPI ‘Nuts and bolts’ articles, click on the ‘Nuts and bolts’ link, then click ‘CPI sources and methods’. The articles are divided according to the 11 CPI groups.

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6. Development updates

Labour cost index review

Statistics NZ is undertaking a labour cost index (LCI) review project. The LCI measures changes in wage rates and non-wage labour costs.

The reweight will ensure the LCI continues to reflect the current labour market. The 2006 Census is a key data source for the reweight, as was the 2001 Census for the previous reweight in 2002. Other important data sources being used include: Statistics NZ's Business Frame (a register of New Zealand businesses), the Labour Cost Survey, and the Quarterly Employment Survey (QES).

The new expenditure weights are being assigned at the sector of ownership (based on whether the organisation is owned privately, by central government, or by local government), by industry group, and occupation level. The expenditure weights will reflect both the number of jobs filled by paid employees, and the pay rates for those jobs.

The reweighted salary and wage rates indexes for the September 2008 quarter were released in November 2008. The reweighted indexes of non-wage labour costs for the June 2009 quarter were published on 22 October 2009. These reweights were based on the existing LCI sample, and the existing industry and occupation groups.

Following the reweight using the existing classifications, more up-to-date industry (Australian and New Zealand Standard Industrial Classification 2006 (ANZSIC06)), and occupation (Australian and New Zealand Standard Classification of Occupations (ANZSCO)) classifications have been implemented in the LCI. These new industry and occupation classifications have different structures from the existing classifications used in the LCI. First LCI results using the new classifications were included in the September 2009 quarter salary and wage rates information release, published on 3 November 2009.

The LCI has been re-expressed on a base of the June 2009 quarter (=1000). The sample of surveyed job descriptions has been refreshed to better reflect the structure of the ANZSIC06 classification. The ANZSIC06-based industry and ANZSCO-based occupation indexes have not been backcast before the June 2009 quarter. However, the LCI (salary and wage rates) series on the old industry and occupation classifications will continue to be published until the June 2010 quarter, providing a year-long overlap.

For more information see the technical notes section of the Labour Cost Index (Salary and Wage Rates): September 2009 quarter information release.

Recent work on the review has focused on the reweight of the non-wage labour costs under ANZSIC06, which will be published on 22 October 2010.

If you would like us to keep you informed of progress on the LCI review, please contact:


Claudia Schroeder
Wellington
04 931 4600
Email: info@stats.govt.nz 

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Update on the business price index redevelopment and ANZSIC 2006 project

The capital goods price index (CGPI) asset type indexes, and the producers price index (PPI) working-level industry output indexes have now all been redeveloped. The remaining CGPI asset type and PPI output industry redevelopments were implemented in the March 2010 quarter.

The PPI industry inputs indexes will be redeveloped as part of a project to update the industry classification used in the PPI. Work is currently underway to update the 1996 Australian and New Zealand Standard Industrial Classification (ANZSIC96) with the 2006 version of the classification for the PPI. We will provide quarterly updates on progress towards implementation, which will be for the March 2011 quarter in May 2011. For more detail, please see the ANZSIC06 information page.

Upcoming consumers price index review

A review of the consumers price index (CPI) will be implemented when the September 2011 quarter index is released in October 2011. The focus of this review will be reselecting and reweighting the basket of representative goods and services used to calculate the CPI. The review will make use of information from the 2009/10 Household Economic Survey (HES) and other sources. The 2009/10 HES ran from July 2009 to June 2010 to collect information on spending by a sample of households. The previous CPI review was implemented when the September 2008 quarter was released in October 2008 and used information from the 2006/07 HES.

This review will help ensure that the CPI basket of goods and services remains representative of New Zealand private resident household purchases.

For more information on the 2011 CPI review please contact:

Peter Campion
Wellington
04 931 4600
Email: info@stats.govt.nz  

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7. Making contact

In future issues of Price Index News, we will use this section to let you know about:

  • plans to consult users of price index statistics
  • the availability of consultation papers
  • how users of price index statistics can participate in the consultation process
  • decisions made after users have been consulted. 

 

If you would like to discuss any aspect of price index statistics, we would like to hear from you. Contact names are at the end of the 'Commentary' section in each Hot Off the Press information release. You can also contact:

  • Chris Pike (Manager – Prices)
  • Litia Tapu (Project manager – Business, Labour and Overseas Trade Price Index outputs)
  • Daniel Griffiths (Project manager – Consumers Price Index outputs)
  • Peter Campion (Acting project manager – Index development). 

 

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

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8. Release dates

Price index release calendar for the next three months

M = Media conference

July 2010

Tue 13 Food Price Index: June 2010
Fri 16 M Consumers Price Index: June 2010 quarter

August 2010

Tue 3 M Labour Cost Index (Salary and Wage Rates): June 2010 quarter
Thu 12 Food Price Index: July 2010
Thu 19 M Producers Price Index: June 2010 quarter
Capital Goods Price Index: June 2010 quarter

September 2010

Fri 10 M Overseas Trade Indexes (Prices): June 2010 quarter (provisional)
Overseas Trade Indexes (Volumes): June 2010 quarter (provisional)
Mon 13 Food Price Index: August 2010
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