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Price Index News: July 2017

1.  Working with others

Showcasing our big data CPI vision

In May 2017, senior analyst Alan Bentley attended the United Nations International Working Group on Price Statistics, in Eltville, Germany, and visited the UK’s Office for National Statistics (ONS). Alan presented Towards a big data CPI for New Zealand, co-authored with senior researcher Frances Krsinich. The paper highlights our current use of digital data sources and ongoing research looking to adopt more big data. Investigating the potential to use mass online price data, collected and classified through our partnership with PriceStats, is at the heart of this innovative work.

The paper was well received, and aligns with the research agendas of many other National Statistics Institutes. Using big data for price index measurement was a key theme of the conference, along with House Price Indices and commercial property prices.

Alan will present a version of his paper in Wellington, on Friday 14 July, at the New Zealand Association of Economists annual conference.

At the ONS headquarters, in Newport, Wales, Alan discussed our recently developed household living-costs price indexes, which show the experience of inflation for different groups in society. The Brits are looking to develop similar statistics so are keen to learn from us, particularly given the positive response we’ve had from our policy customers. The methods we’ve adopted align well with those proposed by the Royal Statistical Society’s User Group, so this has put our series in the limelight.

2.  On the horizon

Winter seasonal goods

We conduct the CPI winter seasonal survey once a year, in the June quarter. Winter seasonal goods in the basket include winter clothing and footwear, winter-weight duvets, and electric fan heaters. We price these goods in June quarters only because they have both a limited supply and demand in other quarters. As a result, prices of winter seasonal goods show change only in June quarters.

Broad-region data for petrol and housing now available on Infoshare

We are making broad-region data for three key areas of the CPI more accessible to our customers.
The following data will be available on Infoshare with the next CPI release on 18 July, and will be updated every quarter.

Rentals for housing and construction of new houses (excluding land):

  • Auckland
  • Wellington
  • Rest of North Island
  • North Island
  • Canterbury
  • Rest of South Island
  • South Island
  • New Zealand less Auckland
  • New Zealand less Christchurch.

Petrol:

  • Auckland
  • Wellington
  • Rest of North Island
  • North Island
  • Canterbury
  • Rest of South Island
  • South Island.

Minimum wage changes in the labour cost index (LCI)

The June 2017 quarter labour market release will show the minimum wage change from $15.25 to $15.75 an hour effective 1 April 2017. See the June 2016 quarter labour market release for an indication of what happened the last time the minimum wage changed.

Carers’ wage increase in the LCI

The changes to carers’ wages from the Care and Support Worker (Pay Equity) Settlement Bill (2017) are due to take effect from 1 July 2017. The impact of this will be shown in the September 2017 labour market release.

3.  Making contact

Consumers price index infographic

Stats NZ has released an animated infographic to help people understand the consumers price index (CPI).

It provides a simple, fun and interactive way to demonstrate how data is being used, and we encourage you to share the animation with your customers.

Hover over the plus signs to see changes in the images, and click on the plus sign for more information about each part of the process.

Consumers Price Index: June 2017 quarter will be released on 18 July.

Image, from CPI Infographic.

4.  Development updates

CPI review in 2017

We are continuing work on the CPI review 2017, as part of our Prices Innovation and Relevance programme.

The purpose of the review is to maintain the relevance of the index by updating the:

  • basket of goods and services
  • expenditure weights.

We used data from the Household Expenditure Statistics: Year ended June 2016 as the basis for the basket and weight updates. We will complement the household expenditure data with industry and administrative data provided by businesses and government organisations.

Each time we introduce a new basket, the CPI comes out one week later than usual.

The CPI review 2017 will be implemented in the December 2017 quarter CPI, which will be released on 25 January 2018. We will be releasing an information paper on 12 January 2018. This paper will give some additional information on what is involved in the CPI review and how it affects the CPI. 

The CPI rebase

This section explains the reasons for the upcoming rebase of the CPI and FPI indexes and when it will be applied. For those of you interested in quality adjustment, or who use the index numbers in your models – read on.

We have been reviewing and reweighting the CPI basket of goods and services over the last six months. Part of the review also involves determining whether there is a need to rebase the indexes. Low inflation has led to relatively  small differences from the expression base of 1000 in the past decade, so we have kept the 2006 base period. However, due to increasing quality in some areas, we have been reporting falling prices in these areas of the index and some are now approaching zero. To adjust for this, we need to reset all of the CPI indexes back to 1000.

Technological advancements affect CPI index numbers

An important part of the CPI review is to ensure we account for improvements in technology. As it improves things get better, faster, flashier, and cheaper. The prices of mobile phones, cameras, and videos, for example, have fallen steadily over the past decade. The average price of a flat panel TV in 2006 was a staggering $3,382. If that same TV was still available today it would likely cost around $200. Similarly, a digital camera bought in 2006 would have cost about $500, now you don’t even have to buy one, they’re built in to your mobile phone and they have better specs. In the day of the ‘brick’, circa 1983, the luxury of being able to call someone while out and about would have cost roughly US$3,995 (see 40 years of the mobile phone: Top 20 facts). By 2006 the average price of a mobile phone was $249; this phone in today’s market would slip into our pocket for a mere $16.33.

When consumers get a better quality product or one with more features for the same price, this counts as a price drop in the CPI. We fix the quality of these types of items in the CPI so that we can price the same item through time.

Figure 1 shows the indexes for TVs and mobile phones for 2006–17.

Figure 1

Figure 2 shows the indexes for the recreation and culture subgroup for the period 2006–17.

Figure 2

Keep your eyes peeled for the updated CPI basket in January

We update the CPI basket every three years, with additions and removals reflecting changes to consumer spending patterns. For example, DVD players were state of the art at the turn of the century and were added to the basket in 2002, but have been replaced by computers in the ‘cloud’ and were removed from the basket in 2008. Video-cassette recorders nearly held on that long and were only removed in 2006, signalling the end of an era of heading to the video shop on a Friday night. Mobile phones were added to the basket in 2002 and because they are still popular, will likely be there for a long time.

New CPI base period

Due to all these technological advances, some of our indexes are now almost zero. From 2006, price falls recorded in the CPI for cellphones and accessories have moved the index for this item from 1000 to 66. The index for TVs is now at 60. Because these indexes are so close to zero we are losing accuracy in the CPI.

To adjust for these large differences, we will rebase the CPI by resetting all the indexes to a base period of June 2017 = 1000.

Using the index numbers for your own models

The CPI percentage movements released before the new base period will not change – the previously published movements are re-scaled. The rebased series will be published in January 2018 as part of the CPI review of basket and weights. We will publish a back-series before January to allow you to make the necessary changes to your models.

5.  Release dates

Price index release calendar for the next three months

July 2017

13 July:            Food Price Index: June 2017

18 July:            Consumers Price Index: June 2017 quarter

27 July:            Household Living-costs Price Indexes: June 2017 quarter

August 2017

2 August:          Labour Market Statistics: June 2017 quarter

11 August:        Food Price Index: July 2017

17 August:        Business Price Indexes: June 2017 quarter

September 2017

1 September:    Overseas Trade Indexes (Prices and Volumes): June 2017 quarter (provisional)

13 September:  Food Price Index: August 2017

This issue of Price Index News was issued on 6 July 2017.

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