Consumers price index review: 2017 (revised) · 2018. 4. 19. · Consumers price index review: 2017 (revised) 7 CPI infographic has more information on the CPI. About the CPI review

Consumers price index review:

2017 (revised)

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Citation

Stats NZ (2018). Consumers price index review: 2017 (revised). Retrieved from www.stats.govt.nz.

ISBN 978-1-98-852872-4

First published in January 2018, revised in April 2018 by

Stats NZ Tatauranga Aotearoa

Wellington, New Zealand

Contact

Stats NZ Information Centre: [email protected]

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Phone international +64 4 931 4600

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Consumers price index review: 2017 (revised)

3

Contents

Revision ............................................................................................................................ 6

Purpose and summary ...................................................................................................... 6

Purpose ................................................................................................................................. 6

Summary of key points ......................................................................................................... 6

About the CPI ......................................................................................................................... 6

About the CPI review ............................................................................................................. 7

Changes to the CPI basket ................................................................................................. 8

Criteria for selecting basket items ...................................................................................... 11

Updating item specifications .............................................................................................. 12

New price collection methods ............................................................................................ 12

Information sources for the basket review ........................................................................ 12

Analysing the expenditure weights .................................................................................. 13

Main changes to CPI weights .............................................................................................. 13

Food ..................................................................................................................................... 14

Alcoholic beverages and tobacco ....................................................................................... 15

Clothing and footwear ........................................................................................................ 15

Housing and household utilities ......................................................................................... 16

Household contents and services ...................................................................................... 17

Health .................................................................................................................................. 18

Transport ............................................................................................................................. 19

Communication .................................................................................................................. 20

Recreation and culture ....................................................................................................... 21

Education ............................................................................................................................ 22

Miscellaneous goods and services ..................................................................................... 23

CPI all groups plus interest ................................................................................................. 24

Tradables/non-tradables .................................................................................................... 24

CPI pricing centres and regional expenditure weights ...................................................... 26

Regional pricing centres ..................................................................................................... 26

Regional expenditure weights versus population weights ............................................... 26

Calculating regional expenditure weights ......................................................................... 26

Reweighting the basket ................................................................................................... 28

Background to reweighting ................................................................................................ 28


4

Excluding out-of-scope expenditure .................................................................................. 28

Price updating expenditure ................................................................................................ 30

Volume adjustments ........................................................................................................... 31

Managing cyclical or volatile expenditure ......................................................................... 32

Household expenditure levels ............................................................................................ 32

Methods for deriving expenditure weights ....................................................................... 33

Purchase of new housing .................................................................................................... 33

Purchase of new motor cars ............................................................................................... 34

Domestic air transport ........................................................................................................ 35

International air transport .................................................................................................. 35

Alcoholic beverages ............................................................................................................ 36

Cigarettes and tobacco ....................................................................................................... 37

Insurance services ............................................................................................................... 37

Health services .................................................................................................................... 39

Education ............................................................................................................................ 40

Clothing and footwear ........................................................................................................ 40

Changing the CPI base period .......................................................................................... 41

Upcoming CPI work ........................................................................................................ 42

Household living-costs price indexes review ..................................................................... 42

Retrospective superlative index ......................................................................................... 42

CPI rolling review ................................................................................................................ 42

2020 CPI review ................................................................................................................... 42


5

List of tables and figures

List of tables

1 Items added to the CPI basket in 2017 .......................................................................................... 8 2 Items removed from the CPI basket in 2017 ................................................................................. 9

3 Changes to CPI basket item specifications in 2017 ..................................................................... 10 4 Tradable and non-tradable items added to the CPI basket ....................................................... 25

5 Information sources for out-of-scope adjustment factors ......................................................... 30 6 Volume adjustments for CPI items .............................................................................................. 31

List of figures

1 Consumers price index weights, group level ................................................................................ 7 2 Food, subgroup-level expenditure weights ................................................................................ 14

3 Alcoholic beverages and tobacco, class-level expenditure weights .......................................... 15 4 Clothing and footwear subgroup-level expenditure weights ..................................................... 16 5 Housing and household utilities, subgroup-level expenditure weights .................................... 17

6 Household contents and services, subgroup-level expenditure weights .................................. 18

7 Health, subgroup-level expenditure weights .............................................................................. 19

8 Transport, subgroup-level expenditure weights ........................................................................ 20 9 Communication, subgroup-level expenditure weights .............................................................. 21 10 Recreation and culture, subgroup-level expenditure weights ................................................... 22

11 Education, subgroup-level expenditure weights ........................................................................ 23 12 Miscellaneous goods and services, subgroup-level expenditure weights ................................. 24

13 CPI regional expenditure and population proportions .............................................................. 27


6

Revision We revised this paper following corrections made to Household expenditure statistics: Year ended

June 2016.

Purpose and summary

Purpose

Consumers price index review: 2017 outlines the changes we made as a result of a review of the

consumers price index (CPI).

Summary of key points

• We added 15 items to the CPI basket and removed 23.

• Housing and household utilities, and miscellaneous goods and services had the biggest increases in weight. The weights for food; alcoholic beverages and tobacco; clothing and

footwear; recreation and culture; and education also increased.

• Increases were influenced by higher spending on restaurant meals and ready-to-eat-food, cigarettes and tobacco, home ownership (including additions and alterations), and

insurance.

• Transport had the biggest decrease in weight. The weights for household contents and

services, health, and communication also decreased.

• Decreases were influenced by lower spending on petrol and telecommunication services. We reviewed our method to calculate the weight for out-patient services which caused the decrease in health.

About the CPI

The CPI measures the changes in prices that households pay for goods and services. Price change

is measured by tracking the prices of individual items that make up a representative basket of goods and services.

Each quarter we collect about 100,000 prices. We visit retail outlets such as supermarkets, department stores, and clothing shops. We send about 2,500 surveys to a range of businesses each

quarter, including construction firms, medical centres, and used car yards. We visit websites to collect prices for things like streaming services, software, and private accommodation rented from others. We also collect data from various other sources, including scanner data for consumer electronics such as televisions, laptops, and mobile phones.

The CPI has a broad range of users. The Reserve Bank may adjust the official cash rate based on

the CPI, which may mean banks adjust their interest rates. This will affect mortgage interest rates, and returns on investments for those saving money. Other government agencies may use the CPI

to adjust payments such as Jobseeker Support and Superannuation. The CPI also helps to inform wage negotiations between employers, employees, and trade unions by reflecting changes in the

cost of living.

https://www.stats.govt.nz/information-releases/household-expenditure-statistics-year-ended-june-2016

https://www.stats.govt.nz/information-releases/household-expenditure-statistics-year-ended-june-2016


7

CPI infographic has more information on the CPI.

About the CPI review

We review the CPI every three years to ensure the index remains relevant. Household spending patterns change over time as tastes, lifestyles, and incomes change, and as the range of goods and

services available for households to acquire changes.

Spending patterns also change as a result of relative price change. Households tend to buy more

of goods and services that become relatively cheaper and less of goods and services that become relatively more expensive. For example, if apple prices increased a lot, but pear prices increased

only a little, consumers might be expected to purchase more pears and fewer apples than before.

The 2017 review has reselected the basket, and updated the relative importance of the items

within it. This is to reflect spending patterns for the year to June 2016 (2015/16). Previous weights

were based on spending patterns for the year to June 2013 (2012/13).

Figure 1 compares the new September 2017 weights for the 11 CPI groups with the June 2014 and

June 2011 quarter weights.

Figure 1 1 Consumers price index weights, group level

0 5 10 15 20 25

Food

Alcoholic beverages and tobacco

Clothing and footwear

Housing and household utilities

Household contents and services

Health

Transport

Communication

Recreation and culture

Education

Miscellaneous goods and services

Consumers price index weightsGroup level

2011

2014

2017

Source: Stats NZ

Percent

http://archive.stats.govt.nz/cpi-infographic-2017/Consumers-Price-Index.html


8

Changes to the CPI basket As part of the 2017 basket review we have:

• added 15 items

• removed 23 items

• changed specifications for items.

There are now 701 items in the CPI basket, down from 709 after accounting for additions, removals, and changes to product specifications.

Table 1 lists the items added to the basket.

Table 1 1 Items added to the CPI basket in 2017

Items added to the CPI basket in 2017

Item Details

Fresh herbs Have grown in relative importance.

Olives Have grown in relative importance.

Flavoured tea Flavoured and herbal tea has grown in relative importance.

Hem of trousers Repairs and alterations to clothing has grown in relative importance.

Food preparations Mixers, blenders, juice extractors, food processors have grown in relative importance.

Storage costs Have grown in relative importance.

Hearing aids Added to improve coverage of health equipment. Have also grown in relative importance.

Physiotherapist fees Significant household expenditure. Added to improve coverage of medical services.

Bicycle helmets Added to represent safety devices for transport. Have grown in relative importance.

Cellphone cases Added to represent cellphone accessories. Significant household expenditure.

Headsets/headphones Significant household expenditure. Added to improve coverage of audio-visual equipment.

Pet insecticides Significant household expenditure. Added to improve coverage of pets and pet related supplies.

Admission charges to zoos

Significant expenditure. Added to improve coverage of cultural services.

Private accommodation rented from others

Has grown in relative importance. Added to improve coverage of accommodation services which has grown in relative weight.

Body massages Has grown in relative importance. Added to improve coverage of personal care which has grown in relative weight.

Source: Stats NZ


9

Table 2 lists the items removed from the basket.

Table 2 2 Items removed from the CPI basket in 2017

Items removed from the CPI basket in 2017

Item Details

Alfalfa sprouts Relatively low expenditure; celery and lettuce remain in the basket.

Spring onions Relatively low expenditure; onions remain in the basket.

Taro Relatively low expenditure; kumara and potatoes remain in the basket.

Canned corn Relatively low expenditure; canned tomatoes remain in the basket.

Luncheon meat Relatively low expenditure; bacon, salami, sausages, and ham remain in the basket.

Cottage cheese Relatively low expenditure; cheddar cheese, camembert cheese, and processed cheese slices remain in the basket.

Takeaway milkshakes Relatively low expenditure; ready-to-eat, takeaway, and fast food already sufficiently represented in the basket.

Liqueurs (on-licence) Relatively low expenditure; spirits, liqueurs, spirit-based drinks (all off-licence), spirits, and spirit-based drinks (both on licence) remain in the basket.

Interior wallboard Relatively low expenditure; sufficient items of property maintenance materials remain in the basket.

Wall paper roll Declining expenditure; relatively low expenditure; sufficient items of property maintenance materials remain in the basket.

Sewing machines Declining expenditure; relatively low expenditure.

Antacids Relatively low expenditure; sufficient other pharmaceutical products remain in the basket.

In-car satellite navigation units replaced by satellite navigation applications on cellphones.

Home line connection charges

Relatively low expenditure.

DVD, Blu-ray players, and player/recorders

Declining expenditure.

MP3 players Declining expenditure.

Set-top boxes for television sets


External computer hard drives


Soft toys Relatively low expenditure; dolls remain in the basket.

Hire of DVD discs Declining expenditure.

Domestic package holidays

Relatively low expenditure.


10

Items removed from the CPI basket in 2017

Item Details

Prams, pushchairs Relatively low expenditure; declining expenditure.

Cheque-book fees Abolished.

Source: Stats NZ

Table 3 summarises the changes to product specifications.

Table 3 3 Changes to CPI basket item specifications in 2017

Changes to CPI basket item specifications in 2017

Item Details

Chicken (whole, frozen) We previously priced sizes 16 24, we now price 1.5kg or higher.

Beer (off licence) We expanded the sample to include craft beers.

hosiery

quarterly basis from department stores.

New vehicles We reviewed and updated the models of cars we collect prices for:

• five models changed to similar but more popular models

of the same make

• two models removed

• five models added, including one electric car model.

Taxi fares We expanded the sample to include ride-sharing services.

Stamps and postage-paid packaging

We reviewed the sample of postage goods and services we collect prices for. We removed postage-paid envelopes (C5, bubble, fast post) from our collection as this service is no longer provided by NZ Post.

Cellphone services We reviewed and updated the cellphone services item. Previously we collected prices for prepaid cellphone services and cellphone pricing plans as part of the same sample for cellphone services.

We split cellphone services into two separate items with separate relative weights:

• prepaid cellphone cards and other top-ups

• cellphone pricing plans.

International flights We expanded the sample to include five additional destinations. One to each of Australia, Pacific Islands, and Asia; and two to North America.

Kittens We removed kittens as a separate item from our price collection for pets, as kitten prices are collected as part of the cats sample.


11

Changes to CPI basket item specifications in 2017

Item Details

Subscriptions and donations to sports clubs

We reviewed and updated the sample of sports clubs subscriptions we collect prices for:

• subscriptions to bowls clubs was removed

• subscriptions to football clubs was added

International package holidays

The transport module in the HES has changed resulting in the

removal of international package holidays and the introduction

of a combined international flights and accommodation subgroup.

We reviewed and updated our presentation of the international

package holidays, international air transport, and international

accommodation services subgroups and classes.

We removed international package holidays from the CPI basket of goods and services. We added overseas

accommodation prepaid in New Zealand to the basket.

As a result, the relative weight of the accommodation services subgroup and the air transport subgroup increased, while the former package holidays subgroup was removed from the

relative weights.

Instruction books We reviewed the types of instruction books we collect prices for as part of our sample. We removed two types of instruction books as we feel the item is sufficiently represented by prices collected for:

• health books

• technical books.

Source: Stats NZ

100 years of CPI basket change provides an interactive visualisation of selected basket additions and removals in the CPI over the 100 years from 1914 to 2014.

See Consumers price index review: 2017 for a full list of the items in the 2017 CPI basket.

Criteria for selecting basket items

Basket items are selected to represent the much wider range of goods and services households purchase. We include particular items in the basket to ensure there is a good representation across the groups, subgroups, classes, and sections. We select more items for classes and sections where there is a relatively high variation in price change (ie where the prices of items in the class or section tend to move differently), than for classes and sections with little variation (ie where prices

move similarly).

http://archive.stats.govt.nz/cpichanges/cpibasketchanges/index.html


12

We typically add items that have grown in relative importance to the point where they make up a

significant share of household spending. We remove items that have declined in relative importance to the point where they no longer have a significant share of household spending.

Another aim of the basket review is to add new goods and services that have become available since the previous review, provided household spending has reached a significant level. We may

also add items that have historically made up a significant share of household spending, but have been excluded from the basket due to difficulty collecting prices and/or adjusting the collected

prices to account for changes in the quality of the products (quality adjustment).

Updating item specifications

We made some changes to the specifications (eg models, varieties) of some items as a result of

reviewing the basket (see table 3 above). However, we did not specifications as part of the 2017 CPI review.

New price collection methods

Between the 2014 and 2017 CPI reviews we trialled and implemented new price collection

techniques from alternate data sources. By adopting collection from secondary data sources we are able to increase the scope and accuracy of our pricing while reducing respondent burden.

For purchase of second-hand cars in the transport group, we now use administrative data from

New Zealand Transport Agency to collect more prices and more specifications for hedonic price

modelling.

The September 2017 quarter was also the first time we collected prices for certain items using web-scraping and API querying. This reduces manual processing time and the chance of human error. Web-scraping also allows us to collect prices for those harder-to-get service providers such

as online accommodation and transport, and private accommodation rented from others.

Work is continuing on exploring new approaches and data sources for the CPI. For more information on our broader work on transforming our data collection methods, see our paper

Towards a big data CPI for New Zealand, which was presented at the Ottawa Group meeting last year.

Information sources for the basket review

The 2017 basket review was informed by the lower-level 2012/13 and 2015/16 Household

Economic Survey (HES) expenditure data, feedback from CPI price collectors, supermarket scan data from the Nielsen Company, retail transaction data obtained from market research company GfK, and information provided directly by businesses and government organisations.

The HES was filled out by a sample of 3,500 households. The number of households represented by the HES sample increased about 3.0 percent, from about 1,640,800 to about 1,690,400 households.

https://www.bundesbank.de/Redaktion/EN/Downloads/Bundesbank/Research_Centre/Conferences/2017/2017_05_10_ottawa_group_06_2_paper.html?__blob=publicationFile


13

Analysing the expenditure weights This chapter analyses changes to the CPI weights.

The following analysis provides graphs of the new CPI weights, compared with 2014 and 2011. Note that the 2017 weights are for September 2017 while the 2014 and 2011 weights are for June 2014 and June 2011.

Tables 1 and 2 in Consumers price index review: 2017 tables

CPI expenditure weights at the September 2017 quarter. The tables also include the expenditure

weights at the June 2011 and June 2014 quarters.

We publish the expenditure weights and indexes at group, subgroup, and class level. These weights are fixed, down to the class level, until the next reweight scheduled for 2020. We will

monitor the relative weights below the class level of the New Zealand household expenditure

classification and may adjust them where necessary to reflect volume-related shifts in relative importance.

Expenditure for the year to June 2016 (the weight reference period) was price updated to the

September 2017 quarter (the price reference period). The effect of price updating is to calculate

how much households would have to spend in the September 2017 quarter to purchase the same quantity (volume) of goods and services purchased in the year to June 2016.

Expenditure on the goods and services purchased in 2015/16 is 2.75 percent higher after price updating to the September 2017 quarter.

Main changes to CPI weights

The 2017 CPI weights show increases (from 2014 to 2017) in the relative importance of:

• restaurant meals and ready-to-eat food (from 4.35 percent in 2014 to 4.93 percent in 2017)

• cigarettes and tobacco (from 2.30 percent to 2.63 percent)

• purchase of new housing (including additions and alterations (from 4.20 percent to 5.50

percent)

• property rates and related services (from 3.18 percent to 3.54 percent)

• purchase of vehicles (from 3.48 percent to 4.47 percent)

• insurance (from 2.50 percent to 3.00 percent).

The 2017 CPI weights show decreases (from 2014 to 2017) in the relative importance of:

• grocery food (from 7.04 percent in 2014 to 6.60 percent in 2017)

• property maintenance (from 3.09 percent to 2.14 percent)

• household energy (from 4.54 percent to 4.14 percent)

• furniture, furnishings, and floor coverings (from 1.47 percent to 1.11 percent)

• petrol (from 5.03 percent to 4.06 percent)

• telecommunication services (from 3.16 percent to 2.48 percent)

• audio-visual and computing equipment (from 1.16 percent to 0.98 percent).


14

Food

The food group has a September 2017 quarter expenditure weight of 19.25 percent, compared with 18.84 percent in 2014.

When we express the food purchased in 2012/13 and 2015/16 in June 2014 and September 2017

quarter prices, respectively, spending rose 12.13 percent. This increase was partly influenced by a 3.39 percent increase in food prices from the June 2014 quarter to the June 2017 quarter.

The main information source we used to reweight the food group was the 2015/16 HES. However, because the HES does not provide accurate information for some food items (eg confectionery

and soft drinks), we also sourced information from food manufacturers and distributors, and from supermarket scan data (from the Nielsen Company).

The relative importance of the restaurant meals and ready-to-eat food subgroup increased from 4.35 percent to 4.93 percent, due to a 24.32 percent increase in spending.

The relative importance of grocery food decreased from 7.04 percent to 6.60 percent, due to a

relatively small expenditure increase of 2.95 percent.

Figure 2 compares the September 2017 expenditure weights for the food subgroups with those for 2011 and 2014.

Figure 2 2 Food, subgroup-level expenditure weights

0 2 4 6 8

Fruit and vegetables

Meat, poultry, and fish

Grocery food

Non-alcoholicbeverages

Restaurant meals andready-to-eat food

FoodSubgroup level expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


15

Alcoholic beverages and tobacco

The alcoholic beverages and tobacco group has a September 2017 quarter expenditure weight of 7.11 percent, compared with 6.96 percent in 2014.

The relative weight of alcoholic beverages decreased from 4.66 percent in 2014 to 4.48 percent in

2017. This is due to decreases in the relative weight for all the alcoholic beverage classes: beer and spirits and liqueurs. These decreases are due to an increase in the relative proportion of off-licence

purchases to on-licence purchases reported in the HES.

The relative weight of cigarettes and tobacco increased from 2.30 in 2014 to 2.63 in 2017. Prices

have risen about 37.26 percent since the June 2014 quarter due to regular increases in excise taxes. Increases in price were partly offset by a decrease in the volume of cigarettes and tobacco

purchased.

Figure 3 compares the September 2017 expenditure weights for the alcoholic beverages and

tobacco classes with those for 2011 and 2014.

Figure 3 3 Alcoholic beverages and tobacco, class-level expenditure weights


The September 2017 quarter expenditure weight for clothing and footwear is 4.36 percent, up

from 4.21 percent in the June 2014 quarter. Spending on clothing and footwear increased 13.81

percent from the 2012/13 weights expressed in June 2014 quarter prices to the 2015/16 weights

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Beer

Wine

Spirits and liqueurs

Cigarettes andtobacco

Alcoholic beverages and tobaccoClass level expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


16

expressed in September 2017 prices. Prices increased 1.22 percent between the June 2014 quarter

and the September 2017 quarters.

Figure 4 compares the September 2017 expenditure weights for the clothing and footwear

subgroups with those for 2011 and 2014.

Figure 4 4 Clothing and footwear subgroup-level expenditure weights

Housing and household utilities

Housing and household utilities remains the largest weighted group in the CPI. Its weight increased from 24.23 percent in the June 2014 quarter to 24.51 percent in the September 2017

quarter.

The group s increase was influenced by increases in the relative weights for home ownership, and property rates and related services. These increases were offset by decreases in the relative weights for housing rentals, property maintenance, and household energy.

Spending on home ownership (which includes both construction of new houses, and alterations

and additions to existing houses) increased 43.50 percent, which was influenced by a 19.58

percent increase in prices.

Spending on property rates and related services increased 21.93 percent, which was influenced by

a 16.25 percent price increase.

Housing rentals expenditure increased 9.43 percent, but due to other areas with stronger growth, the relative weight for housing rentals showed no real change between the June 2014 quarter and

the September 2017 quarter (9.22 percent versus 9.20 percent respectively).

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Clothing

Footwear

Clothing and footwearSubgroup level expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


17

Figure 5 compares the September 2017 expenditure weights for the housing and household

utilities subgroups with those for 2011 and 2014.

Figure 5 5 Housing and household utilities, subgroup-level expenditure weights

Household contents and services

The household contents and services group has a September 2017 quarter expenditure weight of 4.38 percent, compared with 4.65 percent in 2014.

This decrease is largely caused by a 16.86 percent decrease in spending on furniture, furnishings, and floor coverings. Spending on this subgroup increased 12.7 percent between 2011 and 2014,

influenced by a rebound from low spending on furniture during the six-quarter economic

recession that began in March 2008.

Figure 6 compares the September 2017 expenditure weights for the household contents and services subgroups with those for 2011 and 2014.

0 2 4 6 8 10

Rentals for housing

Home ownership

Property maintenance

Property rates andrelated services

Household energy

Housing and household utilities Subgroup level expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


18

Figure 6 6 Household contents and services, subgroup-level expenditure weights

Health

The health group has a September 2017 quarter expenditure weight of 3.78 percent, down from 3.94 percent in 2014.

The decrease is due to a change in the method we used to estimate expenditure for some outpatient services. The method involved using HES expenditure data and supplementing it with

insurance claims. When reviewing this method and comparing results with other sources, we determined the method we used before included income from non-household sources, and

therefore over-estimated expenditure.

Figure 7 compares the September 2017 expenditure weights for the health subgroups with those for 2011 and 2014.

0.0 0.5 1.0 1.5 2.0

Furniture, furnishings,and floor coverings

Household textiles

Household appliances

Glassware,tableware, and

household utensils

Tools and equipmentfor house and garden

Other householdsupplies and services

Household contents and services Subgroup levelexpenditure weights

2011

2014

2017

Source: Stats NZ

Percent


19

Figure 7 7 Health, subgroup-level expenditure weights

Transport

The transport group has a September 2017 quarter expenditure weight of 13.97 percent, down

from 14.97 percent in the June 2014 quarter.

This decrease is mainly driven by petrol. The weight for petrol decreased from 5.03 percent to 4.06

percent. Total spending on petrol decreased 11.58 percent, which was influenced by a decrease of 12.62 percent in prices between June 2014 and September 2017.

The weight for purchases of vehicles increased from 3.48 percent in 2014 to 4.47 percent in 2017.

The expenditure on purchase of vehicles increased 40.89 percent between June 2014 quarter and September 2017 quarter.

The weight for international air transport increased from 1.45 percent to 1.82 percent, while domestic air transport decreased from 0.68 percent to 0.56 percent.

Figure 8 compares the September 2017 expenditure weights for the transport subgroups with

those for 2011 and 2014.

0 1 2 3 4

Medical products,appliances, and

equipment

Out-patient services

Hospital services

Health Subgroup level expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


20

Figure 8 8 Transport, subgroup-level expenditure weights

Communication

The communication group has a September 2017 quarter expenditure weight of 3.20 percent, down from 3.61 percent at the June 2014 quarter.

Within this group the weight for telecommunication equipment increased from 0.29 percent in 2014 to 0.61 percent.

The weight for telecommunication services decreased from 3.16 percent to 2.48 percent.

Figure 9 compares the September 2017 expenditure weights for the communications subgroup

with those for 2011 and 2014.

0 2 4 6 8 10

Purchase of vehicles

Private transportsupplies and services

Passenger transportservices

TransportSubgroup expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


21

Figure 9 9 Communication, subgroup-level expenditure weights

Recreation and culture

The recreation and culture group has a September 2017 quarter expenditure weight of 9.40 percent, the same as that for the June 2014 quarter.

The weight for audio-visual and computing equipment fell from 1.16 percent to 0.98 percent, influenced by prices decreasing 29.13 percent between June 2014 and September 2017.

The weight for other recreational equipment and supplies increased from 2.23 percent to 2.40 percent, driven by a 25.92 percent increase in expenditure on pets and pet-related products.

We made a change to the structure of the accommodation services, and package holidays

subgroups. This was a result of changes to the HES module for package holidays. The HES asked households for their expenditure on flights and accommodation instead of expenditure on package holidays. During the 2017 CPI review, we changed our approach to this by dropping package holidays from the basket and increasing the relative weights for accommodation services

and air transport (however, we will still continue to price the main components of a package

holiday). We added overseas accommodation prepaid in New Zealand, which took most of the

relative weight previously assigned to international package holidays. People still spend for

package holidays, but many are increasingly booking their own holidays and flights online. As a

result, the relative weight for the package holidays subgroup dropped from 1.13 percent in June 2014 to zero in September 2017. Consequently, the relative weight for accommodation services increased from 0.48 percent in the June 2014 quarter to 1.71 percent in the September 2017 quarter. Together, the combined relative weight of accommodation services and package holidays increased from 1.61 percent in the June 2014 quarter to 1.71 percent in September 2017. The

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Postal services

Telecommunicationequipment

Telecommunicationservices

Communication Subgroup level expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


22

relative weight of international air transport (which is in the transport group) increased from 1.45

percent in the June 2014 quarter to 1.82 percent in the September 2017 quarter.

Figure 10 compares the September 2017 expenditure weights for the recreation and culture

subgroups with those for 2011 and 2014.

Figure 10 10 Recreation and culture, subgroup-level expenditure weights

Education

The education group has a September 2017 quarter expenditure weight of 2.01 percent, up from 1.91 percent in the June 2014 quarter.

Much of the increase came from tertiary and other post-school education, which had increased

spending of 26.53 percent.

Figure 11 shows the September 2017 expenditure weights for the education subgroups with those

for 2011 and 2014.

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Audio-visual andcomputing equipment

Major recreational andcultural equipment

Other recreationalequipment and supplies

Recreational andcultural services

Newspapers, books,and stationery

Accommodationservices

Package holidays

Recreation and culture Subgroup level expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


23

Figure 11 11 Education, subgroup-level expenditure weights

Miscellaneous goods and services

The miscellaneous goods and services group has a September 2017 quarter expenditure weight of 8.02 percent, up from 7.28 percent in the June 2014 quarter.

Most of this increase came from insurance, which increased from 2.50 percent to 3.00 percent influenced by higher prices for dwelling and health insurance. Within insurance, dwelling

insurance increased from 0.41 percent to 0.60 percent, while life insurance increased from 1.02 percent to 1.20 percent.

Figure 12 shows the September 2017 expenditure weights for the miscellaneous goods and

services subgroups with those for 2011 and 2014.

0.0 0.2 0.4 0.6 0.8 1.0

Early childhoodeducation

Primary, intermediate,and secondary

education

Tertiary and other post-school education

Other educational fees

EducationSubgroup level expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


24

Figure 12 12 Miscellaneous goods and services, subgroup-level expenditure weights

CPI all groups plus interest

We excluded interest payments from the CPI since 1999, but have produced an analytical CPI all groups plus interest series since then. The interest component of this index has a September 2017

quarter weight of 7.34 percent, down from 7.37 percent in the June 2014 quarter.

Mortgage interest has a September 2017 quarter weight of 5.83 percent, up from 5.62 percent in

the June 2014 quarter.

The main source of information for interest expenditure weights was the money, credit, and

financial statistics published by the Reserve Bank of New Zealand.

Our household living-cost price indexes (HLPI) also include interest.

Tradables/non-tradables

Tradables are goods and services that are imported or that are in competition with foreign goods and services, either in domestic or foreign markets. Non-tradables are goods and services that do

not face foreign competition.

Table 4 shows which of the items we added to the basket of goods and services this year are tradable and non-tradable.

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Personal care

Personal effects

Insurance

Credit services

Other miscellaneousservices

Micellaneous goods and services Subgroup level expenditure weights

2011

2014

2017

Source: Stats NZ

Percent


25

Table 4 4 Tradable and non-tradable items added to the CPI basket

Tradable and non-tradable items added to the CPI basket

Tradable Non-tradable

Fresh herbs Hem of trousers

Olives Storage costs

Flavoured tea Hearing aids

Food preparations, mixers, and blenders Physiotherapist fees

Bicycle helmets Admission charges to zoos

Cellphone cases Private accommodation rented from others

Headsets/phone sets Body massages

Pet insecticides

Source: Stats NZ

The September 2017 quarter expenditure weight of the tradables component is 42.53 percent,

compared with 43.59 percent in 2014. The September 2017 quarter expenditure weight of the non-

tradables component is 57.54 percent, compared with 56.41 percent in 2014.

See table 6 in Consumers price index review: 2017 tables

tradables/non-tradables CPI weights.


26

CPI pricing centres and regional expenditure weights This chapter describes the structure of our regional pricing centres and the regional expenditure

weights.

CPI prices are collected from 12 regional pricing centres within five broad regions (Auckland, Wellington, rest of North Island, Canterbury, and rest of South Island).

We use regional weights to ensure price changes in a region with a larger population (eg Auckland)

will have a greater effect on the national CPI than price changes in a region with a smaller

population (eg Wellington). Instead of using the population weight of a region to determine its regional weight in the CPI, we base our regional weights on regional household spending from the HES.

Regional pricing centres

The 12 regional pricing centres are: Whangarei, Auckland, Hamilton, Tauranga, Napier-Hastings, New Plymouth, Palmerston North, Wellington, Nelson, Christchurch, Dunedin, and Invercargill.

Regional expenditure weights versus population weights

price change, and regional spending patterns to weight the individual basket items within each region. In contrast, regi

regional price change and national spending patterns to weight the individual basket items in each region.

Regional expenditure weights give a higher weight to regions with more spending per person compared with regional population weights. For example, 36.16 percent of household expenditure

is from households in Auckland, which has 34.41 percent of the population. This means that, on average, price changes in Auckland will have a greater influence on the CPI using regional

expenditure weights than regional population weights.

Regional expenditure weights also give higher weights to items within a region where relative

expenditure is higher than the national average. For example, housing and household utilities has

a national expenditure weight of 24.51 percent, but makes up 26.29 percent of household

expenditure in Auckland. This means price change for housing and household utilities in Auckland has more influence on the Auckland index using regional expenditure weights, than regional population weights, which use the national average weight. This produces more accurate regional

indexes.

Calculating regional expenditure weights

We calculated regional expenditure weights as proportions of national expenditure for each CPI

class or section (the lowest published level) using HES regional expenditure. We applied class/section level proportions to the individual items within that class or section (eg the regional

proportions for fruit were applied to national expenditure on each fruit item) to derive regional

expenditure on each individual item (eg spending on apples in Auckland).


27

In some cases, HES data was not available, and/or household sample sizes were too small to

provide reliable regional breakdowns. Where this was the case we used data from other sources, or population shares.

More than three-quarters of the regional expenditure weight was derived from the HES, while 14.23 percent came from other sources, and the remaining 8.09 percent used population shares.

Regional expenditure was then expressed in September 2017 quarter prices for the respective region (eg apple expenditure in Auckland was expressed in September 2017 quarter apple prices

collected in Auckland).

For broad regions with multiple pricing centres (rest of North Island and rest of South Island), we

used population shares to allocate the regional expenditure weight to the pricing centres.

Figure 13 e population.

Figure 13 13 CPI regional expenditure and population proportions

See tables 3 and 4 in Consumers price index review: 2017 tables revised

0

5

10

15

20

25

30

35

40

Auckland Wellington Rest of North Island Canterbury Rest of South Island

2017 CPI weight Population

CPI regional expenditure and population proportions

Source: Statistics New Zealand

Percent


28

Reweighting the basket This chapter explains how we reweighted the CPI basket.

Background to reweighting

We reweight the CPI every three years, on average, as part of regularly scheduled CPI reviews. Reweighting ensures that the relative importance (expenditure weights) of the goods and services in the CPI basket continue to reflect up-to-date household spending patterns. The frequency of reweights is within the International Labour Organization (ILO) recommendation of at least once

every five years.

The 2017 reweight was based on data from the 2015/16 HES and other sources. The previous reweight, completed in 2014, was based on the 2012/13 HES and other sources.

Data sources for reweighting the CPI basket

The HES is the primary information source for reweighting the basket. However, other sources are

also required, as the HES does not provide accurate expenditure estimates for some goods and

services.

HES respondents tend to under-report expenditure on some goods and services (eg tobacco and alcohol). Large, infrequent purchases (eg new cars) may not be reported frequently enough by the

3,500 households in the survey to provide accurate estimates of total household expenditure.

We complemented the HES data with information from other sources, including Stats NZ surveys,

government administration data, retail transaction data, and information provided by businesses.

Over the last two CPI reviews (2014 and 2017), we changed our approach to make use of more HES data, when estimates from other sources are close to the HES estimates. In the 2011 review, 54.5 percent of the CPI weights were derived from the HES. This increased to 70.8 percent in 2014. In

the 2017 CPI review, 66.8 percent of the CPI weights were derived from the HES.

What the basket represents

The goods and services in the CPI basket are a sample that represents the wider range of goods

and services households buy. The expenditure weights assigned to the 701 individual goods and services in the new 2017 basket represent expenditure on those goods and services. In addition, the expenditure weights also represent expenditure on similar goods and services not directly included in the basket but expected to experience similar price change. For example, oranges and mandarins are in the basket but lemons are not. Expenditure on lemons (and other citrus fruit not

in the basket) is allocated to oranges and to mandarins in proportion to spending directly on each

of these two citrus fruits.

Excluding out-of-scope expenditure

When we use other data sources for expenditure estimates, we often have to adjust the data so


29

The HES (and CPI) reference population is New Zealand-resident, private households living in

permanent private dwellings. This means that the reference population does not include:

• overseas visitors who expect to be resident in New Zealand for fewer than 12 months

• people living in non-private dwellings such as hotels, motels, boarding houses, hostels, motor camps, and homes for the elderly which provide medical care and services

• patients in hospitals

• residents of psychiatric and penal institutions; members of the permanent armed forces

• members of the non-New Zealand armed forces

• overseas diplomats.

Children, including those at boarding schools, are not surveyed in the HES, but expenditure on behalf of those children by their parent or guardian is included.

spend four or more nights a week in the household. They must share food consumption or

contribute some portion of income towards providing the essentials for living as a group.

How we exclude out-of-scope data

Because the HES and CPI reference populations are the same, we do not need to adjust HES expenditure when using this source to estimate expenditure weights.

However, a key step when we use other data sources to estimate expenditure weights is to adjust our estimates so they include expenditure made only by the HES/CPI reference population. If we

sourced from the HES. In addition to the people listed above who are not covered by HES and CPI, we also exclude expenditure by businesses and government.

We source other information from a wide range of providers. We asked data suppliers to report expenditure information that closely matches the scope of the CPI where possible. However, many

providers were not able to break their data down to this level of detail, and instead provide data

with a wider scope. To account for this, we estimate what proportion of a particular expenditure was in scope of the CPI.

We derived a set of specific adjustment ratios for various areas of the basket to exclude out-of-

scope expenditure. Appropriate ratios were then applied to the corresponding independently

sourced expenditures. For example, these ratios took into account the relative share of

expenditure by visitors from overseas, which varied significantly for different parts of the basket.

Table 5 shows some of the information sources used to derive the out-of-scope adjustment factors.


30

Table 5 4 Information sources for out-of-scope adjustment factors

5 Information sources for out-of-scope adjustment factors

Information sources for out-of-scope adjustment factors

Type of out-of-scope

expenditure Information source Breakdown

Business and government National accounts

household consumption

expenditure

Estimates proportion of

total retail spending by the

business sector, by retail

store type

Non-private and non-

permanent households

2013 Census Resident population

Non-residents (overseas

visitors)

Tourism satellite account International visitor

expenditure as a proportion

of total supply, by product

Source: Stats NZ

Price updating expenditure

the 2015/16 HES (although expenditure on some goods and services is collected in the HES on a

one-year recall basis, meaning that purchases can span the two-year period from July 2014 to

June 2016). When we used other sources to derive expenditure weights, we used information for

the year to June 2016 where possible.

by the ILO and is common international practice. The effect of price updating is to express the

quantities underlying the 2015/16 expenditure values in the prices of the September 2017 quarter, the new price reference period. In general we used lower-level CPI indexes that correspond to the goods and services in the new basket to price-update the expenditure weights.

Effect of price updating

After price updating to the September 2017 quarter, the new CPI expenditure weights were about

2.75 percent higher.

Price updating increased expenditure for 77.93 percent of the basket, by weight. Prices for dwelling insurance increased by about 13.88 percent from 2015/16 to the September 2017 quarter. Prices for cigarettes and tobacco increased 14.59 percent over the same period.

Price updating decreased expenditure for 21.64 percent of the basket, and the remaining 0.43

percent experienced no price change. Goods and services where price updating resulted in

reduced expenditure included: games and toys (down 14.94 percent), international air fares (down

11.72 percent), and accommodation services (down 7.50 percent).

We customised price updating indicators for some items, such as new vehicles, telecommunications equipment, and audio-visual equipment and computing equipment, to

include rather than exclude quality improvements. In general, this reduced the downward effect of price updating on the new weights, and in some cases, increased the 2015/16 weight.


31

Volume adjustments

CPIs are generally calculated using a base-weighted Laspeyres-type (or Lowe) formula that measures the changing cost of acquiring a fixed basket of goods and services. The underlying

are held fixed.

We fix the underlying 2015/16 quantities in the Laspeyres-type price index formula over the life of

the index (from 2017 to 2020). We assume that these quantities will be broadly representative of household purchases during the three-year life of the index (although we know that consumers

will, to some extent, substitute towards goods and services showing lower relative price change during the period).

We also know that there were significant shifts in quantities for some goods and services between the 2015/16 weight reference period and the September 2017 quarter price reference period.

As part of the reweight, we made volume adjustments to some of the underlying quantities. This

occurred selectively where there was strong evidence that a significant trend (rather than short-term) change in volumes had taken place between the weight reference periods and the price reference periods.

Although using selected adjustments introduces a level of subjectivity to the reweighting process,

we consider this preferable to steadfastly retaining the underlying 2015/16 quantities across the

whole basket. The aim of making these adjustments is to improve the relevance of the expenditure weights during the period they will be used (2017 20).

before price updating, or incorporated into the indicator used to price update 2015/16

expenditures.

Table 6 lists the volume adjustments we made, the reasons for making them, and the data sources

used to determine whether to adjust and by how much. Note that volume change includes not only change in physical quantities, such as the number of new vehicles acquired, but also change

in quality.

Table 6 tems

6 Volume adjustments for CPI items

Volume adjustments for CPI items

Goods or service Reason for adjustment Information source

Cigarettes and tobacco

To reflect lower volumes, influenced by excise tax increases

Cigarettes and tobacco available for consumption data for the years to June 2016 and June 2017

New cars To allow us to better calculate weights for newer models and discontinued models

Vehicle registration information for the years to June 2016 and June 2017

Telecommunication equipment and audio visual equipment

To reduce the downward effect of price updating due to quality adjustments

Volume and sales information available from GfK administrative data

Source: Stats NZ


32

Managing cyclical or volatile expenditure

Expenditure for some goods and services is highly cyclical or highly volatile. Two highly-weighted examples are the purchase of newly constructed dwellings, and insurance services.

Since the 2006 review we have extended the weight reference period to three years (ending the

same date as the HES) for purchase of housing (and related services such as conveyancing and real estate fees), rentals for housing (for 2006, 2008, and 2011 only), and insurance services. This

extension makes it possible to partially smooth the impact of cyclical highs or lows (housing) or unusual claims years (insurance). For the 2017 review, we used information for the three years to

June 2016.

In cases where we made volume adjustments, and for housing and insurance (where we used an

average of more than one year for the weight reference period), we adjusted volumes for periods after or before the weight reference period of 2015/16 to remove the effect of growth in the usually resident population. For example, nominal growth in volume from the weight reference period of

2015/16 was deflated by population growth between 2015/16 and 2016/17. This action ensured any volume adjustments we made were above those that may have resulted from population change alone.

Household expenditure levels

The CPI Advisory Committee 2013 recommended we express the CPI weights as dollar values

(average weekly household spending) as well as percentages. the

CPI, the Explore living-costs in New Zealand app expresses the HLPI weights as dollar values and includes an all households index.

https://statisticsnz.shinyapps.io/livingcostsexplorer/


33

Methods for deriving expenditure weights This chapter outlines the methods we used to derive expenditure weights for key parts of the CPI.

The HES is the primary source of weighting information. We use HES estimates where expenditure estimates using other data sources come out similarly to HES estimates, or for goods and services where the HES information is the best available. We use other information sources to calculate expenditure weights or to validate HES estimates for items with significant expenditure.

Purchase of new housing

expenditure weight allocated to purchases of housing represents the value of the net increase in

the stock of owner-occupied housing during the weight reference period. We include both expenditure on newly constructed dwellings by owner-occupiers and alterations and additions to

existing owner-occupied dwellings.

The net change in the number of owner-occupied dwellings reflects the overall effect of

households:

• acquiring newly constructed dwellings for occupation

• demolishing established owner-occupied dwellings

• selling established owner-occupied dwellings to landlords, small businesses, developers, or

government

• acquiring established dwellings (for owner-occupation) from landlords, small businesses, developers, or government.

Sales within the household sector of established owner-occupied dwellings do not add to the stock of owner-occupied dwellings, as netting results in each purchase (positive expenditure) being cancelled out by a corresponding sale (negative expenditure). However, any net shift of

dwellings in either direction between owner-occupation and renting or small-business use should

be included. This shift results in either a net addition (towards owner-occupation) or net reduction (towards renting or business use) to the stock of owner-occupied housing.

Calculating the 2017 weight

We use dwelling tenure statistics to get the change in the overall number of owner-occupied dwellings. From the 2012/13 to the 2015/16 HES periods, the increase in owner-occupied dwellings almost doubled, contributing to increases in the relative expenditure weight for purchases of new

housing. The time-series estimate was last updated with owner-occupier rates from the 2013 Census. It will be revised and updated again after the 2018 Census.

We use a weight reference period of three years (to the end of the HES period) to derive annual average CPI expenditure weights for the purchase of housing (and related services such as

conveyancing and real estate fees) to partially smooth the effect of cyclical highs or lows in activity. For the 2017 review, we used information for the three years to June 2016.


34

We used the time-series estimates of the number of owner-occupied dwellings for the years to

June 2014, 2015, and 2016 to calculate the net annual change for each of the three years to June 2016. We multiplied these net annual changes by the average cost of constructing a new dwelling

during each of these years (deribuilding work put in place statistics). The average costs for the years to June 2014 and 2015 were

price updated to the year to June 2016 using the CPI index for home ownership. We averaged figures for each of the three years to June 2016.

The value of additions and alterations to established owner-occupied dwellings were derived from HES. Examples of additions and alterations include large-scale expenditure on plumbing,

carpentry, landscaping, double glazing, heating installation, and building an annex (such as a new kitchen, an out-house, or adding additional rooms onto an existing dwelling).

The final step was to price update to the September 2017 quarter. The price-updating indicator we

used for the part of the estimate relating to new dwellings was the CPI index for the purchase of

new housing.

Information from the Census of Population and Dwellings, HES, and other sources indicates a trend over a lengthy period towards lower home-ownership rates. However, the number of new

owner-occupied dwellings is still increasing at a steady rate.

Calculating regional expenditure on purchase of housing

We calculated regional expenditure weights for the purchase of housing using a combination of HES and information from other sources.

We used regional expenditure on property alterations and additions, and the estimated change in

the number of owner-occupied dwellings, broken down by region, combined with regional

average prices for newly consented dwellings.

Note

1. To derive the CPI expenditure weight for purchase of housing, households holding the

homes they occupy in family trusts were treated as being owner-occupied (even though

this might not be true in a strict legal sense). 2. The CPI does not include expenditure by landlords on, or relating to, the properties they

rent out.

Purchase of new motor cars

We used information from other sources to estimate expenditure on new vehicles. This is because

HES estimates for vehicles can be unreliable as vehicles are large infrequent purchases and therefore may not be reported frequently enough by the 3,500 households in the survey.

Calculating the 2017 expenditure weight

We used information on new motor cars registered by individuals for private use (broken down by make and model) in the year to June 2017 in conjunction with list prices (by make and model) for the same period. Prices were multiplied by the number of registrations to derive the expenditure


35

weight for new motor cars. We made adjustments to exclude out-of-scope expenditure and to

reflect discounts for cash purchases.

We used this calculation to allocate total new car expenditure to small, medium, large, hybrid and

electric cars. We then allocated this weight to the various models we price in each size category.

Reselecting car makes and models

We reselected the sample of new car makes and models. The reselection was based on registrations (broken down by make and model) for the year to June 2017. We increased the

number of new cars in our sample from 16 to 19. The new sample of car models that we collect prices for includes two new medium-sized cars, two new small cars, and a new electric car. These were offset by removing two small cars. We also updated the models for five existing cars.

What the vehicle expenditure weights represent

The expenditure weight allocated to the purchase of new cars represents gross expenditure on

new cars for private use by households.

The expenditure weight for the purchase of second-hand cars, derived from HES, represents net purchases of second-hand cars (ie purchases of second-hand cars minus sales and trade-ins of

second-hand cars, including trade-ins on purchases of new cars).

Domestic air transport

We used industry information to estimate total revenue from domestic passengers carried for the

year to June 2016.

Since domestic air transport trips in New Zealand are also taken by the non-CPI reference

population, we needed to adjust for out-of-scope trips. This involved removing estimated expenditure on domestic air transport by business users, tourists, and people who are not part of

private households living in permanent dwellings (using information sources listed in the

-of-

As part of the 2017 review, the travel routes for which prices are collected each month were reviewed and reweighted to reflect the changing relative importance of routes. No routes were added or removed from the sample.

International air transport

We used information from different data sources to estimate the expenditure weights for

international air transport in the 2017 CPI review.

Calculating the 2017 expenditure weight

The expenditure weight estimate involves two key steps. First, we estimated the volume of in-

scope trips (broken down by routes) taken by the CPI population. Second, we combined these volumes with average prices, which were weighted by the importance of routes.

We derived passenger volumes largely from external migration statistics. We used information on

short-term overseas trips taken by New Zealand residents in conjunction with port-of-


36

disembarkation data to derive passenger volumes at the route level. We then removed out-of-

scope trips, such as where the main purpose of travel was business, or conventions and conferences.

We used information collected as part of the CPI monthly survey of international air transport to derive a set of weighted average prices. These average prices took into account the relative

importance of airlines for each route, and included the taxes and levies payable on each journey.

Finally, after combining the volumes with their corresponding weighted average prices, we

removed out-of-scope expenditure by people who are not part of private households living in -of-scope expend

section above).

Reweighting and reviewing international air transport routes

As part of the 2017 review, we reweighted and reviewed the routes we collect prices for each month to reflect the changing popularity of destinations. We added five additional routes to the sample: one to Australia, one to the Pacific islands, one to Asia, and two to North America.

Alcoholic beverages

Households filling in the HES tend to under-report expenditure on alcoholic beverages, so other

information sources are required to calculate their CPI expenditure weights.

We used the quantities of alcoholic beverages available for consumption within New Zealand, in

the year to June 2016, as a proxy for purchases in the weight reference period. These were available at a detailed level (eg by type of spirit for full-strength spirits).

We calculated expenditure estimates by multiplying the quantities available for consumption by

the average prices derived from CPI price collections. The quantities were split into beverages

consumed on and off licensed premises, using industry information (beer) and HES (wine, spirits, and liqueurs). This is an important step, since prices for alcoholic beverages consumed on licensed

premises are much higher than for beverages consumed off licensed premises. The beer

information was available in quantities. However, because the HES breakdown by storetype related to expenditure shares, spending on wine and on spirits and liqueurs had to be converted to quantity shares by using corresponding average prices.

We used the disaggregated alcohol available for consumption figures, and supermarket scan

information on the relative shares of different types of wine, to allocate quantities to a

representative sample of beverages in the CPI basket.

We made adjustments to exclude out-of-scope expenditure from international visitors, businesses, and people living in non-private dwellings (using information from the sources listed in the

-of- ).

In dollar-value terms, the expenditure weight of alcoholic beverages before price updating was more than double what it would have been if based simply on information reported in the 2015/16 HES.


37

Cigarettes and tobacco

HES respondents also tend to under-report expenditure on cigarettes and tobacco.

We used the quantities of cigarettes and tobacco available for consumption within New Zealand in the year to June 2017 in the calculations.

We calculated expenditure estimates by multiplying the quantities available for consumption by average prices derived from CPI price collection. These prices show that cigarette and tobacco

price levels from different store types are relatively similar.

We made adjustments to exclude out-of-scope expenditure from international visitors and people

living in non-private dwellings (using information from the sources listed in xcluding out-of-scope expenditure ).

We used supermarket scan data to review the relative importance of the brands in the sample.

We made volume adjustments to reflect declines in the quantities of cigarettes and tobacco available for consumption in the year to September 2017 (compared with the year to June 2016),

following the annual 10 percent increases in excise duty.

Insurance services

We estimate expenditure weights for the various types of insurance service on a 'net' basis. Under a net approach, the cost of insurance is only the cost associated with the insurance companies

providing administration and risk-pooling services.

The insurance industry is viewed as providing an intermediation service in which the contributions

made by policy holders are pooled and managed. The part of premiums that does not pay for the intermediation service goes into pools. The pools are managed by the insurance companies,

invested to best advantage, and provide a source of funds for policyholders to use when they need to repair or replace insured property, pay for medical services, or obtain income.

The net approach

Under the net approach, the weight given to insurance relates to the administrative costs of

providing the service (ie collecting premiums and paying claims), and the profits of insurance

companies.

We define the value of the insurance service as:

• gross insurance premiums payable by households

• plus premium supplements (income earned on investing prepaid premiums and actuarial

reserves)

• less claims

• less changes in actuarial reserves.

Under the net approach for insurance services, the weights of goods and services covered by insurance represent total expenditure on goods and services, whether funded by insurance or

other means.


38

The national accounts take a similar view of insurance services.

General insurance

The general insurance method covers dwelling, contents, and vehicle insurance.

The first step involved using industry information on total claims and premiums to estimate an -charge ratio.

We calculated the service-charge ratio using industry information on the value of claims and premiums. Previously, in the 2011 and 2014 CPI reviews, we had to adjust the claims to account for

spreading earthquake-related claims over a 20-year period, in line with treatment in the national

earthquakes for the weight reference period, and 1/20th of the claims related to the earthquakes.

We continued to use this methodology in the 2017 CPI review.

For the second step, we applied the service charge ratio to HES expenditure on gross insurance premiums. This gave us net expenditure on insurance services. This approach is consistent with

the recommended approach in the ILO Consumer Price Index Manual.

Our decision to use the HES expenditure, rather than industry information on premium income, was to better align the scope of the estimates with th

estimates of gross premiums paid by households, whereas industry information needs to be further adjusted to remove out-of-scope expenditure (eg expenditure by landlords on dwelling

and contents insurance relating to properties they rent out). The decision was not related to effects from the Canterbury earthquakes.

Health and life insurance

The CPI expenditure weights for life insurance and health insurance were based on service charges

derived from industry information.

We needed to adjust the industry information service charges to bring them in line with the scope of the CPI. The information for health insurance includes a proportion that is funded by employers,

which was excluded from the CPI weight calculations (the value of fringe benefits, or income paid

in kind, has not traditionally been included in the CPI weights). We obtained information from the industry on the share of premiums funded by employers.

Some types of life insurance are excluded from the CPI because they represent savings and

investment, rather than consumption. However, 'term' life insurance provides risk-only cover and has no surrender or residual value. Claims are paid out only in the event of death, disability, or

personal accident. For the CPI, the service provided by term life insurance is regarded as

protection against the risk of disability, personal accident, or loss of life. Given that there is no

investment element in this type of life insurance, it is appropriate to include it in the CPI, and

therefore only information on term life insurance was used in our expenditure estimate.

We also made adjustments to exclude the estimated shares of health and life insurance service charges attributable to people who are not part of private households living in permanent

-of-

section above).

http://www.ilo.org/public/english/bureau/stat/guides/cpi/


39

Allocating claims to goods and services

Using the net approach for insurance services, we allocate spending on goods and services that is

funded by insurance claims to the expenditure weights of those goods and services. When insurance providers pay claims directly to households, the resulting expenditure made by households to repair or replace insured property is captured directly in the HES. However, when

insurance providers pay claims directly to the goods and service providers who repair or replace insured property, this expenditure on behalf of households is not captured in the HES.

We obtained information on the proportion of claims paid directly to service providers for the different types of general insurance from the industry. These proportions were applied to the claims figures used to derive the service charge weights. We added the resulting amounts to the

expenditure weights of appropriate insurable goods and services. The total estimated amount of

general insurance claims paid directly to goods and service providers was about $992 million (about half related to vehicle insurance).

Health services

The expenditure weights allocated to the various health services represent out-of-pocket

spending by private households; and spending on claims made on behalf of private households by

health insurance companies to health service providers.

The health group experienced methodology changes for calculating the relative expenditure

weights for a second review in a row. This reflects the difficulties we encounter when trying to find alternative data sources to the HES.

In 2017, within the health group, we derived most of the expenditure weights allocated to the hospital services subgroup from sources other than the HES. This was the same as the approach to hospital services in 2014. During both of these reviews we used Annual Enterprise Survey (AES)

data to provide information on the total income of hospital service providers. We used detailed

AES information to remove income from services other than hospital services (eg government funding) from the industry total. Before 2014, our method for removing this other income was not

as robust and, as a result, the expenditure weight for hospital services was a lot higher in 2011 and prior.

In contrast, for the out-patient services subgroup we derived most of the expenditure weights

using the HES supplemented by insurance claims data. We did this for items where we deemed the

HES to be a reliable source for capturing expenditure. This is different from the 2014 approach for out-patient services which used the same AES-based methodology as hospital services. For certain items within the out-patients services subgroup, however, we continued to use the 2014

approach. The methodology change resulted in a decline in the 2017 relative expenditure weight for the out-patient services subgroup.

The expenditure estimates for health services include health insurance payments that insurance

companies make on behalf of households. We made an adjustment to exclude the share of health insurance claims attributable to employers who subsidise health insurance premiums of paid

employees.


40

Education

In 2017, the 2015/16 HES appears to provide accurate estimates for some, but not all, types of education.

Expenditure for the primary, intermediate, and secondary education subgroup, which makes up

about 32.24 percent of education expenditure, was estimated using other sources. We estimated to state and integrated schools using Ministry of Education information. We

estimated the weight for private school fees using pupil enrolment numbers supplied by the Ministry of Education, and average prices from the CPI survey of private school fees.

The expenditure weight for the remaining education subgroups (early childhood education, tertiary and other post-school education, and other educational fees) came from the HES.

However, we used information from the Ministry of Education, such as enrolment numbers and income from fees, to reallocate the HES expenditure in a way that better aligns with these other data sources.


HES estimates of expenditure on clothing and footwear appear to be significantly understated. This may reflect under-reporting by respondents and/or issues with how information is collected. The 2017 weight was based on Retail Trade Survey (RTS) sales figures for the year to June 2016.

The approach we used to derive the CPI clothing and footwear expenditure weights involved five

steps:

1. use the HES to determine the proportion of sales at clothing stores, department stores, footwear stores, and other stores that sell clothing and footwear

2. apply these proportions to RTS sales figures for the equivalent store types

3. add GST to the RTS expenditure

4. remove out-of-scope spending (eg spending by international visitors and businesses) 5. increase the HES expenditure for individual clothing and footwear items by the ratio of

HES expenditure to adjusted RTS expenditure, at the storetype level.

We used a similar approach for the previous reviews. Benchmarking HES expenditure to the RTS

contributed about one-third of the 2017 CPI expenditure weight for clothing and footwear.


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Changing the CPI base period The 2017 review included resetting the CPI indexes to a base period of June 2017 = 1,000 from the

previous base of June 2006 = 1,000). Note that the CPI percentage movements before the new base

period have not changed. This has been achieved by rescaling previously published movements.


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Upcoming CPI work

Household living-costs price indexes review

We published Household living-costs price indexes review: 2017 in February 2018.

The new HLPI weights were implemented in the December 2017 quarter release, published on 15 February 2018.

Retrospective superlative index

We will update our analytical retrospective superlative index series and analysis by mid-2018. The publication will also include an update to the analysis of how the CPI might have tracked had CPI

reweighting been less frequent.

CPI rolling review

The third cycle of our CPI rolling review of retail outlets will begin in by mid-2018.

2020 CPI review

The next three-yearly CPI review will begin in June 2019. We will implement changes from the review in October 2020 when the September 2020 quarter CPI is released.

https://www.stats.govt.nz/reports/household-living-costs-price-indexes-review-2017

https://www.stats.govt.nz/information-releases/household-living-costs-price-indexes-december-2017-quarter

Consumers price index review: 2017 (revised) · 2018. 4. 19. · Consumers price index review: 2017 (revised) 7 CPI infographic has more information on the CPI. About the CPI review

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