Consumers Price Index Review 2017

Stats 0
Tatauranga Aotearoa
Consumers price index review:

2017
NewZealand Government
Crown copyright ©
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Citation
Stats NZ (2018). Consumers price index review: 2017. Retrieved from www.stats.govt.nz.
ISBN 978-1-98-852850-2 (online)
Published in January 2018 by

Stats NZ Tatauranga Aotearoa
Wellington, New Zealand
Contact
Stats NZ Information Centre: info@stats.govt.nz
Phone toll-free 0508 525 525
Phone international +64 4 931 4600
www.stats.govt.nz
Consumers price index review: 2017
Contents
Contents. 3
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

T radables/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
3
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 motorcars 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
4
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 T radable 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
5
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). These changes will be implemented in Consumers price index:
December 2017.
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.
CPI infographic has more information on the CPI.
6
About the CPI review

We review the CPI every three years to ensure the index remains relevant. Household spending
patterns change overtime 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 1compares the new September 2017 weights for the 11 CPI groups with the June 2014 and
June 2011 quarter weights.
Figure 1
Consumers price indexweights

Group level
Group
Food
Alcoholic beverages and tobacco
Clothing and footwear
Housing and household utilities
Household contentsand services
Health
Transport
Communication
Recreation and culture 2011
2014
Education
2017
M iscellaneous goods and services
0 5 10 15 20 25
Percent
Source: Stats NZ
7
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
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 Significant expenditure. Added to improve coverage of cultural
zoos services.
Private Has grown in relative importance. Added to improve coverage
accommodation rented of accommodation services which has grown in relative weight.
from others
Body massages Has grown in relative importance. Added to improve coverage
of personal care which has grown in relative weight.
Source: Stats NZ
8
Table 2 lists the items removed from the basket.
Table 2
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 Declining expenditure; it’s thought that these have been
navigation units replaced by satellite navigation applications on cellphones.
Home line connection Relatively low expenditure.
charges
DVD, Blu-ray players, Declining expenditure.
and player/recorders
MP3 players Declining expenditure.
Set-top boxes for Declining expenditure.
television sets
External computer hard Declining expenditure.
drives
Soft toys Relatively low expenditure; dolls remain in the basket.
Hire of DVD discs Declining expenditure.
Domestic package Relatively low expenditure.
holidays
9
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
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.
Women’s hosiery We removed the monthly collection of women’s hosiery from
supermarkets. We will continue to collect women’s hosiery on a
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- We reviewed the sample of postage goods and services we
paid packaging 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.
10
Changes to CPI basket item specifications in 2017

Item Details
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.
Subscriptions and We reviewed and updated the sample of sports dubs
donations to sports subscriptions we collect prices for:
clubs  subscriptions to bowls clubs was removed
 subscriptions to football clubs was added
International package The transport module in the HES has changed resulting in the
holidays 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 airtransport, 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 the Excel table ‘Consumers price index review: 2017 - basket item list’ under ‘Download data’
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
li
or section tend to move differently), than for classes and sections with little variation (ie where
prices move similarly).
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 explicitly review basket items’
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.
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.
12
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 - tobies under ‘Download data’ give the new
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 theyearto June 2016.
Expenditure on the goods and services purchased in 2015/16 is 2.1 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 4.99 percent in 2017)
 cigarettes and tobacco (from 2.30 percent to 2.59 percent)
 purchase of new housing (including additions and alterations (from 4.20 percent to 5.42
percent)
 property rates and related services (from 3.18 percent to 3.56 percent)
 purchase of vehicles (from 3.48 percent to 4.55 percent)
 insurance (from 2.50 percent to 2.99 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 6.58 percent in 2017)
 property maintenance (from 3.09 percent to 2.23 percent)
 household energy (from 4.54 percent to 4.14 percent)
 furniture, furnishings, and floor coverings (from 1.47 percent to 1.12 percent)
 petrol (from 5.03 percent to 3.96 percent)
 telecommunication services (from 3.16 percent to 2.45 percent)
 audio-visual and computing equipment (from 1.16 percent to 0.96 percent).
13
Food
The food group has a September 2017 quarter expenditure weight of 19.3 percent, compared with
18.8 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 14.1 percent. This increase was partly influenced by a
3.39 percent increase in food prices from the June 2014 quarter to the September 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 4.99 percent, due to a 27.8 percent increase in spending.
The relative importance of grocery food decreased from 7.04 percent to 6.58 percent, due to a
relatively small expenditure increase of 4.22 percent.
Figure 2 compares the September 2017 expenditure weights for the food subgroups with those for
2011 and 2014.
Figure 2
Food
Subgroup-level expenditure weights
Subgroup
Fruit and vegetables
M eat, polity, amt fish
Grocery fb od
Non-alcoholic 2011
beverages
2014
2017
Restaurant meals and
ready-to-eat Ibod
0 2 4 6 3
Percent
Source: Stats NZ
14

The alcoholic beverages and tobacco group has a September 2017 quarter expenditure weight of
7.00 percent, compared with 6.96 percent in 2014.
The relative weight of alcoholic beverages decreased from 4.66 percent in 2014 to 4.41 percent in
2017. This is due to decreases in the relative weight for all the alcoholic beverage classes: beer,
wine, 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 2.59 in 2017. Prices
have risen about 37.3 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

Class-level expenditure weights
Class
Beer
Wine
2011
2014
Spirits and liqueurs 2017
Cigarettes and
tobacco
0.0 0.5 1.0 1.5 2.0 2.5 2.0

Percent
Source: Stats NZ

The September 2017 quarter expenditure weight for clothing and footwear is 4.28 percent, up
from 4.21 percent in the June 2014 quarter. Spending on clothing and footwear increased 13.3
percent from the 2012/13 weights expressed in June 2014 quarter prices to the 2015/16 weights
15
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

Subgroup
Clothing
Fmtv«ar
2011
2014
2017
0.0 0.5 1.0 1.5 2.0 2.5 5.0 35 4.0
Percent
Source: Stats NZ

Flousing and household utilities remains the largest weighted group in the CPI. Its weight
increased from 24.2 percent in the June 2014 quarter to 24.5 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 43.6 percent, which was influenced by a 19.6 percent
increase in prices.
Spending on property rates and related services increased 24.8 percent, which was influenced by
a 16.3 percent price increase.
16
Housing rentals expenditure increased 10.3 percent, but due to other areas with stronger growth,
the relative weight for housing rentals decreased slightly from 9.22 percent in June 2014 quarter
to 9.12 percent in the September 2017 quarter.
Figure 5 compares the September 2017 expenditure weights for the housing and household
utilities subgroups with those for 2011 and 2014.
Figure 5

Subgroup
Rentals 1b r housing
Home ownership
Property maintenance
Property rates and

related services
2011
2014
Household energy
O 2 4 6 £ 10
Percent
Source: Stats HZ
Household contents and services

The household contents and services group has a September 2017 quarter expenditure weight of
4.46 percent, compared with 4.65 percent in 2014.
This decrease is largely caused by a 15.0 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.
17
Figure 6
Household contents and services

Subgroup
Firniture, famishingÿ
and flour coverings
Household textiles
Household appliances
Glassware,
tableware, and
household utensils
2011
Toolsand equipment
lor house and garden 2014
2017
Other household
supplies and services
0.0 0.5 1.0 1.5 2.0

Percent
Source: Stats NZ
Health
The health group has a September 2017 quarter expenditure weight of 3.83 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.
18
Figure 7
Health
Subgroup
Medical products,
appliances* and
equipment
Out-patient services
2011
Hospital services 2014
2017
0 1 2 2 4
Percent
Source: Stats NZ
Transport
The transport group has a September 2017 quarter expenditure weight of 13.9 percent, down from
15.0 percent in the June 2014 quarter.
This decrease is mainly driven by petrol. The weight for petrol decreased from 5.03 percent to 3.96
percent. Total spending on petrol decreased 12.3 percent, which was influenced by a decrease of
12.6 percent in prices between June 2014 and September 2017.
The weight for purchases of vehicles increased from 3.48 percent in 2014 to 4.55 percent in 2017.
The expenditure on purchase of vehicles increased 45.7 percent between June 2014 quarter and
September 2017 quarter.
The weight for international air transport increased from 1.45 percent to 1.79 percent, while
domestic air transport decreased from 0.68 percent to 0.55 percent.
Figure 8 compares the September 2017 expenditure weights for the transport subgroups with
those for 2011 and 2014.
19
Figure 8
Transport
Subgroup expenditure weights
Subgroup
Purchase of vehicles
Private transport
supplies and services
2011
Passenger transport 2014

services 2017
Q 2 4 6 3 10
Percent
Source: Stats NZ
Communication
The communication group has a September 2017 quarter expenditure weight of 3.16 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 0.60 percent.
The weight for telecommunication services decreased from 3.16 percent to 2.45 percent.
Figure 9 compares the September 2017 expenditure weights for the communications subgroup
with those for 2011 and 2014.
20
.L
Figure 9
Communication
Subgroup
Postal services
2011
T etecommunication 2014
equipment
2017
Telecommunication
services
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Percent
Source: Stats NZ
Recreation and culture

The recreation and culture group has a September 2017 quarter expenditure weight of 9.51
percent, up from 9.40 percent in the June 2014 quarter.
The weight for audio-visual and computing equipment fell from 1.16 percent to 0.96 percent,
influenced by prices decreasing 29.1 percent between June 2014 and September 2017.
The weight for other recreational equipment and supplies increased from 2.23 percent to 2.38
percent, driven by a 29.1 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 1.12 percent in June
2014 to zero in September 2017. Consequently, the relative weight for accommodation services
21
increased from 0.48 percent in the June 2014 quarter to 1.77 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 1.77 percent in September 2017.
The relative weight of international air transport (which is in the transport group) increased from
1.45 percent in the June 2014 quarter to 1.79 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
Recreation and culture

Subgroup
Audio-visual and
computing equipment
Major recreational and

cultural equipment
Other recreational
equipment and supplies
Recreational and
cultural services
Nevepaperrs, books,
and statiionery 2011
Accommodation 2014
services 2017
Package holidays
0.0 0.5 1.0 1.5 2.0 2.5 3.0

Percent
Source: Stats NZ
Education
The education group has a September 2017 quarter expenditure weight of 2.03 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 29.7 percent.
Figure 11 shows the September 2017 expenditure weights for the education subgroups with those
for 2011 and 2014.
22
Figure 11
Education
Subgroup
Early childhood
education
Primary, intermediate,
and secondary
education
Tertiaryandotherpost-
school education
2011
2014
Other educational fees
2017
0.0 0.2 0.4 0.6 o.s 1.0

Percent
Source: Stats NZ
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 2.99 percent
influenced by higher prices for dwelling and health insurance. Within insurance, dwelling
insurance increased from 0.41 percent to 0.61 percent, while life insurance increased from 1.02
percent to 1.19 percent.
Figure 12 shows the September 2017 expenditure weights for the miscellaneous goods and
services subgroups with those for 2011 and 2014.
23
Figure 12
Micellaneous goods and services

Subgroup level expenditure weights
Subgroup
Personal care
Personal effects
Insurance
Credit services
2011
2014
Other miscellaneous 2017

services
0.0 0.5 1.0 1.5 2.0 2.5 3.0

Percent
Source: Stats HZ
CPI all groups plus interest

We have 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 7.23 percent, down from 7.37 percent in the June 2014 quarter.
Mortgage interest has a September 2017 quarter weight of 5.66 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) include interest.
Tradables/non-tradables
T radables 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.
24
Table4
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 43.5 percent,
compared with 43.6 percent in 2014. The September 2017 quarter expenditure weight of the non¬
tradables component is 56.5 percent, compared with 56.4 percent in 2014.
See table 6 in ‘Consumers price index review: 2017 - tables’ under ‘Download data’ for the 2017
tradables/non-tradables CPI weights.
25
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

Regional expenditure weights use each region’s share of national expenditure to weight regional
price change, and regional spending patterns to weight the individual basket items within each
region. In contrast, regional population weights use the region’s share of the population to weight
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, 36.3 percent of household expenditure
is from households in Auckland, which has 34.4 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 24.5 percent, but makes up 26.2 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).
26
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.
About 75.0 percent of the regional expenditure weight was derived from the HES, while 16.8
percent came from other sources, and the remaining 8.20 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 compares each region’s share of national expenditure with its share of the population.
Figure 13
CPI regional expenditure and population proportions
Percent
40
2017 CP I weight Population
35
30
25
20
15
10
5
0
Auckland Wellington Rest of North Island Canterbury Rest of South Island
Source: Stats NZ
See tables 3 and 4 in ‘Consumers price index review: 2017 - tables’ under ‘Download data’ for the
CPI regional expenditure weights by CPI group.
27
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
that it matches the CPI’s reference population.
28
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.
For survey purposes, a ‘household’ is a group of people who share a private dwelling and normally
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
don’t adjust the data, weights derived from other sources could be too high relative to weights
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.
29
Table 5
4 Information sources for out-of-scope adjustment factors
Information sources for out-of-scope adjustment factors

Type of out-of-scope
Information source Breakdown
expenditure
Business and government National accounts Estimates proportion of
household consumption total retail spending by the
expenditure business sector, by retail
store type
Non-private and non- 2013 Census Resident population
permanent households
Non-residents (overseas Tourism satellite account International visitor
visitors) expenditure as a proportion
of total supply, by product
Source: Stats NZ
Price updating expenditure

For the 2017 review, the ‘weight reference’ period is the year to June 2016, which coincides with
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.
Expenditure information from the 2015/16 HES and other sources has been ‘price updated’ to the
‘price reference’ period of the September 2017 quarter. Price updating is recommended for CPIs
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 77.3 percent of the basket, by weight. Prices for dwelling
insurance increased by about 13.9 percent from 2015/16 to the September 2017 quarter. Prices for
cigarettes and tobacco increased 14.8 percent over the same period.
Price updating decreased expenditure for 21.7 percent of the basket, and the remaining 1.00
percent experienced no price change. Goods and services where price updating resulted in
reduced expenditure included: games and toys (down 15.0 percent), international air fares (down
11.7 percent), and accommodation services (down 7.60 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.
30
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
quantities of the basket’s contents relate to an earlier period (the ‘weight reference’ period) and
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).
These ‘volume adjustments’ were made in two ways: either directly to the 2015/16 expenditures
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
Volume adjustments for CPI items

Goods or service Reason for adjustment Information source
Cigarettes and To reflect lower volumes, Cigarettes and tobacco available for
tobacco influenced by excise tax consumption data for the years to June
increases _ 2016 and June 2017 _
New cars To allow us to better calculate Vehicle registration information for the
weights for newer models and years to June 2016 and June 2017
discontinued models
Telecommunication To reduce the downward Volume and sales information available
equipment and effect of price updating due to from GfK administrative data
audiovisual quality adjustments
equipment _
Source: Stats NZ
31
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. While we haven’t done this for the
CPI, the Explore living-costs in New Zealand app expresses the HLPI weights as dollar values and
includes an ‘all households’ index.
32
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
The ‘net’ approach

Under the ‘acquisition’ conceptual approach used to compile the New Zealand CPI, the
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.
33
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 (derived from Stats NZ’s building consents statistics and value of
building 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
34
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 airtransport
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
‘excluding out-of-scope expenditure’ section above).
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-
35
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
permanent dwellings (using information sources listed in the ‘excluding out-of-scope expenditure’
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 ‘excluding out-of-scope expenditure’ section above).
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.
36
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 the ‘excluding out-of-
scope expenditure’ section above).
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.
37
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
‘expected’ service-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
the ‘abnormal’ level of claims from the Canterbury earthquakes. The adjustment involved
spreading earthquake-related claims over a 20-year period, in line with treatment in the national
accounts. The adjusted claims values therefore included ‘normal’ claims not related to the
earthquakes for the weight reference period, and l/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 the CPI’s scope. HES provides reliable
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
dwellings (using information from the sources listed in the ‘excluding out-of-scope expenditure’
section above).
38
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.
39
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 31.5 percent of education expenditure, was estimated using other sources. We estimated
parents’ contribution 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 (egspending 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.
40
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). See CSV files for Infoshare subjects for a back series of rebased
index numbers for all CPI and FPI series. Note that the CPI percentage movements before the new
base period have not changed. This has been achieved by rescaling previously published
movements.
41
Upcoming CPI work

Household living-costs price indexes review
Information on the 2017 household living-cost price index (HLPI) review will be published on 1
February 2018.
The new HLPI weights will be implemented in the December 2017 quarter, released on 15 February
2018.
Retrospective superlative index

We will update our analytical retrospective superlative index series and analysis in late
February/early March 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 March 2018. We will provide
more information on the review’s scope closer to that time.
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.
42

Consumers Price Index Review 2017

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Consumers price index review:

ISBN 978-1-98-852850-2 (online)

Published in January 2018 by

Purpose and summary 6

Changes to the CPI basket 8

New price collection methods 12

Information sources for the basket review 12

Analysing the expenditure weights 13

Alcoholic beverages and tobacco 15

CPI all groups plus interest 24

CPI pricing centres and regional expenditure weights 26

Reweighting the basket 28

Excluding out-of-scope expenditure 28

Managing cyclical or volatile expenditure 32

Methods for deriving expenditure weights 33

Domestic air transport 35

Changing the CPI base period. 41

Upcoming CPI work 42

Retrospective superlative index 42

2020 CPI review 42

List of tables and figures

Purpose and summary

Summary of key points

About the CPI

CPI infographic has more information on the CPI.

About the CPI review

Consumers price indexweights

Alcoholic beverages and tobacco

Clothing and footwear

Housing and household utilities

Household contentsand services

Recreation and culture 2011

Changes to the CPI basket

Table 1 lists the items added to the basket.

Items added to the CPI basket in 2017

Table 2 lists the items removed from the basket.

Items removed from the CPI basket in 2017

Items removed from the CPI basket in 2017

Table 3 summarises the changes to product specifications.

Changes to CPI basket item specifications in 2017

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

We split cellphone services into two separate items with

International flights We expanded the sample to include five additional

Changes to CPI basket item specifications in 2017

Criteria for selecting basket items

Updating item specifications

New price collection methods

Information sources for the basket review

Analysing the expenditure weights

Main changes to CPI weights

Fruit and vegetables

M eat, polity, amt fish

Alcoholic beverages and tobacco

Alcoholic beverages and tobacco

0.0 0.5 1.0 1.5 2.0 2.5 2.0

Clothing and footwear

Clothing and footwear

0.0 0.5 1.0 1.5 2.0 2.5 5.0 35 4.0

Housing and household utilities

Housing and household utilities

Property rates and

Household contents and services

Household contents and services