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Review Committee Endorses CPI Methodology

Review Committee Endorses CPI Methodology

The 2004 Consumers Price Index Revision Advisory Committee has endorsed the way the CPI is compiled, Government Statistician Brian Pink said today when releasing the committee's report. The committee also noted that the index in its current form is well accepted by users.

The committee met in June this year to undertake an independent review of the practices and methods used to compile the CPI, taking into account the wide-ranging uses of the index. The seven-member committee was chaired by John McDermott, chief economist of the National Bank. Most of the committee's 20 recommendations call for refinement of, rather than fundamental changes to, current practices. The recommendations will play a major part in shaping the revised CPI, which is scheduled for introduction in 2006.

The committee recommended that the CPI should remain an acquisitions-based price index that measures inflation in the goods and services purchased by resident private households. It concluded that the CPI is well suited for use in the management of New Zealand monetary policy.

The committee noted that the CPI is also put to other important uses, such as by government, employers and employees seeking adjustments to benefit payments and wages to maintain living standards in the face of changing costs. As a result, the committee recommended that Statistics New Zealand develop an additional index or indexes more suited to measuring changes in the cost of living. Mr Pink supported the potential value of these additional measures, but noted that current resources do not allow for the development of cost of living indexes. A case for funding will be made when the additional costs that would be involved have been assessed.

Another recommendation was to review the existing number of 15 regional centres from which prices are collected, in consultation with users. The review would form part of an integrated sample review of items, regions, field outlets and brands, undertaken in the lead-up to the 2006 revision.

Currently, fresh fruit and vegetable prices used in the CPI are seasonally adjusted. Other goods and services in the CPI basket that are known to show seasonality in their prices, such as international airfares, are not seasonally adjusted. To ensure the CPI better reflects actual short-term movements in prices, the committee recommended that the current partial seasonal adjustment be removed.

The committee also recommended adopting a standard international classification, which would enable greater comparability of price change across countries and could potentially harmonise the classification systems used in the CPI, Household Economic Survey and Household Consumption Expenditure estimates in the National Accounts. This would enhance integration of the statistics from all three sources.

Mr Pink said he appreciated the major contribution of the committee to the review process and noted that it had provided him with a very balanced set of recommendations. He said Statistics New Zealand would now develop a programme of work to implement the recommendations.

Members of the 2004 Consumers Price Index Revision Advisory Committee were: John McDermott (chair), National Bank; Nick Clark, Business New Zealand; Peter Conway, New Zealand Council of Trade Unions; Peter King, The Family Centre Social Policy Research Unit; Ralph Lattimore, Nelson Marlborough Institute of Technology; Paul McCarthy, Australian Bureau of Statistics; and David Scott, Auckland University Department of Statistics.

The Report of the Consumers Price Index Revision Advisory Committee 2004 is available on the Statistics New Zealand website at www.stats.govt.nz or on request.

Brian Pink
Government Statistician
END


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