Food Price Index: July 2008

Food prices in July 2008

Food prices rose 0.6 percent in July 2008, following increases of 1.3 percent and 1.0 percent in June and May 2008, respectively.

In July 2008, higher prices were recorded for the following subgroups: fruit and vegetables (up 3.6 percent), grocery food (up 0.5 percent), restaurant meals and ready-to-eat food (up 0.6 percent), and non-alcoholic beverages (up 0.4 percent). Lower prices were recorded for the meat, poultry and fish subgroup (down 1.0 percent).

The most significant individual upward contributions came from higher prices for lettuce (up 32.4 percent), yoghurt (up 9.2 percent), and cucumber (up 27.9 percent).

The most significant individual downward contributions came from lower prices for fresh chicken (down 7.1 percent), tomatoes (down 14.6 percent), and nectarines (down 32.3 percent). 

 
  

Distribution of item-level movements

The table below outlines the distribution of price movements in June and July 2008. The Food Price Index (FPI) has been partitioned into those national item-level indexes that increased, showed no change, or decreased.

The distribution of item-level movements shows that:

• the percentage expenditure weight of items that decreased in price rose, while the percentage expenditure weight of items that increased in price fell
• the weighted average price increase rose, while the weighted average price decrease fell slightly
• the percentage expenditure weight of items that increased in price is still greater than the percentage expenditure weight of items that decreased in price.

These movements resulted in a 0.6 percent increase in the July 2008 FPI, compared with a 1.3 percent increase in June 2008. 

Annual movements

All five of the food subgroups increased in the year to July 2008. The most significant upward contribution came from higher prices for the grocery food subgroup (up 11.2 percent), followed by restaurant meals and ready-to-eat food (up 6.0 percent), fruit and vegetables (up 5.4 percent), meat, poultry and fish (up 4.3 percent), and non-alcoholic beverages (up 6.6 percent).

Within these subgroups, the most significant upward contributions came from higher prices for ready-to-eat food (up 7.3 percent), bread (up 19.6 percent), cheddar cheese (up 59.3 percent), butter (up 89.4 percent), and fresh milk (up 10.2 percent).

The most significant downward contribution came from lower prices for tomatoes (down 47.0 percent).

Fruit and vegetables

Prices for the fruit and vegetable subgroup increased 3.6 percent in July 2008, following increases of 5.2 percent and 3.8 percent in June and May 2008, respectively.

Vegetable prices increased 4.6 percent in July 2008, while fruit prices increased 1.9 percent.

The most significant upward contributions came from higher prices for lettuce (up 34.4 percent), cucumber (up 27.9 percent), apples (up 10.9 percent), and avocados (up 25.0 percent).

Significant downward contributions came from lower prices for tomatoes (down 14.6 percent) and nectarines (down 32.3 percent).

For the year to July 2008, fruit and vegetable prices increased 5.4 percent. The most significant upward contributions came from higher prices for lettuce (up 69.0 percent), potatoes (up 31.9 percent), apples (up 27.4 percent), and frozen vegetables (up 18.1 percent). The most significant downward contributions came from tomatoes (down 47.0 percent) and courgettes (down 49.6 percent).

 

Grocery food

Prices for the grocery food subgroup increased 0.5 percent in July 2008, following increases of 0.4 percent and 0.5 percent in June 2008 and May 2008, respectively.

The most significant upward contributions came from higher prices for yoghurt (up 9.2 percent), prepared meals (up 8.4 percent), salted peanuts (up 6.6 percent), and rice (up 10.3 percent).

The most significant downward contribution came from lower prices for potato crisps (down 5.8 percent), cakes and biscuits (down 1.7 percent), and fresh milk (down 1.0 percent).

For the year to July 2008, prices for the grocery food subgroup increased 11.2 percent. The most significant upward contributions came from higher prices for bread (up 19.6 percent), cheddar cheese (up 59.3 percent), butter (up 89.4 percent), and fresh milk (up 10.2 percent). 

Meat, poultry and fish

Prices for the meat, poultry and fish subgroup decreased 1.0 percent in July 2008, following increases of 1.3 percent and 0.2 percent in June 2008 and May 2008, respectively.

Significant downward contributions came from lower prices for fresh chicken (down 7.1 percent) and lamb (down 6.2 percent).

The most significant upward contributions came from higher prices for sausages (up 5.9 percent) and pork (up 5.3 percent).

For the year to July 2008, prices for the meat, poultry and fish subgroup increased 4.3 percent. The most significant upward contributions came from higher prices for frozen chicken (up 24.8 percent), beef (up 5.3 percent), and bacon (up 9.1 percent). 

Other subgroups

In July 2008, higher prices were recorded for the restaurant meals and ready-to-eat food subgroup (up 0.6 percent) and the non-alcoholic beverage subgroup (up 0.4 percent).

Within these subgroups, the most significant upward contributions came from higher prices for ready-to-eat food (up 1.0 percent), coffee (up 3.3 percent), and soft drinks (up 0.6 percent).

The most significant individual downward contribution came from lower prices for energy drinks (down 3.0 percent). 

 
For technical information contact:
Sharlene Turner or Daniel Griffiths
Wellington 04 931 4600
Email: info@stats.govt.nz

Food Price Index review

Introduction

A periodic review of the FPI, undertaken as part of a wider review of the Consumers Price Index (CPI), has been implemented with the publication of the July 2008 FPI.

The review encompassed the reselection of the basket of representative food goods and services and the reweighting of the basket to reflect the relative importance of household spending on food. A greater level of detail is now being made available, with both the expenditure weights and index numbers being published for categories at the section level within selected classes.

Review of food goods and services in the basket

Before the 2008 review, there were 154 food goods and services in the FPI basket. As part of the 2008 review, seven new food items have been added to the basket and four have been removed. The items added to the basket are:

• fresh pineapple (replaces fresh peaches)
• cooked chicken (priced at supermarkets, and joins frozen-whole, fresh pieces, and takeaway chicken that are already in the basket)
• soy milk (replaces condensed milk)
• free-range eggs (joins standard eggs)
• hummus dip
• frozen desserts (covers a broad range, including cheesecake)
• chilled fruit juice and smoothies (joins 1-litre and 3-litre shelf-stable fruit juices).

The items removed from the basket are:

• fresh peaches (replaced by pineapple, although other stone fruit, such as nectarines, remain in the basket)
• saveloys (sausages remain in the basket)
• condensed milk (replaced by soy milk)
• cheesecake (now covered by the broader frozen desserts category).

The pricing specifications of all the food goods and services in the FPI basket have also been reviewed to ensure surveyed varieties and sizes are representative of household purchases.

Expenditure weights

The main source of information used to reweight the FPI basket was the 2006/07 Household Economic Survey (HES), which collected detailed information on the spending patterns of about 2,600 households. However, because the HES doesn't provide accurate information for some food items, such as confectionery and soft drinks, information was also sourced from food manufacturers and distributors, and from supermarket scan data (from the Nielsen Company).

The initial weights for the year to June 2007 (the weight reference period) were 'price updated' to the June 2008 month (the price reference period). This updating involved expressing the underlying quantities of the weight reference period in the prices of the price reference period. The initial weights indicated that households spent $13.263 billion on food during the year to June 2007 (2006/07). When the food consumed during 2006/07 is expressed in prices that were current at June 2008, that spending rises to $14.583 billion (10.0 percent higher, due to increased food prices since 2006/07).

The figure below shows the new relative importance of the FPI subgroups. It shows that about $21 of every $100 spent by households on food is spent on eating out or takeaways. About $17 of every $100 spent on food is on meat, poultry and fish, and about $14 is on fruit and vegetables. Non-alcoholic beverages such as coffee, soft drinks and fruit juice account for $10, and the remaining $38 is spent on grocery food.

Table 4 in the tables section gives the new expenditure weights, as at the June 2008 month, for the reweighted FPI.

The relative importance of grocery food has increased slightly, from 38.19 percent in 2006 to 38.34 percent in 2008. Within this subgroup, the weight of milk, cheese and eggs increased from 8.89 percent to 10.19 percent, which partly reflects recent increases in cheese prices.

The relative shares of fruit and vegetables, of meat, poultry and fish, and of non-alcoholic beverages, all grew. The increase in the relative importance of non-alcoholic beverages, from 9.04 percent in 2006 to 10.18 percent in 2008, in part reflects real growth in spending on beverages such as soft drinks, energy drinks and bottled water, and partly reflects the availability of better information sources for the 2008 FPI review.

Based on spending reported in the 2003/04 and 2006/07 Household Economic Surveys, the relative importance of restaurant meals and ready-to-eat food has declined. This decline is not thought to represent a real fall in spending between the two surveys. Rather, results from the two surveys suggest that the level of spending on restaurant meals reported in the 2003/04 survey may have been overstated. Spending on ready-to-eat food actually increased 16 percent, but when expressed as a percentage of total spending, its relative importance fell slightly, from 12.77 percent to 12.43 percent.

Food prices rose 8.2 percent in the year to June 2008. This annual increase is the largest annual increase since June 1990, when food prices rose 10.0 percent from a year earlier, partly as a result of an increase in the GST rate from 10 percent to 12.5 percent in July 1989. The prices of oils and fats rose 31.9 percent in the year to June 2008 (which reflects an increase of 87 percent in butter prices), and milk, cheese and egg prices rose 22.8 percent (with cheddar cheese up 62 percent).

Faced with increases in food prices during 2007/08, consumers have reacted to some extent by changing their spending patterns. Supermarket scan data from the Nielsen Company for the years to June 2007 and June 2008 was used to examine whether any significant shifts were evident. The data, combined with FPI average prices, showed that consumers have been buying less cheddar-type cheese and buying less butter but more margarine. The 2008 FPI expenditure weights for cheddar cheese, butter and margarine were adjusted to reflect these changes, which occurred after the 2006/07 survey period. Adjustments were also considered for milk and bread, but for these items there was no indication of declines in volumes.

Regional population weights

As part of the review of the FPI and the CPI, the regional population weights have been updated. These population weights are used to allocate the national expenditure weights of goods and services derived from the HES and other sources to the FPI pricing centres. The population weights ensure that a given price change in Auckland, for example, with a new population weight of 32.98 percent, would have nearly three times the effect on the national FPI than would the same movement in Christchurch, which has a new population weight of 11.55 percent.

The new population weights, which appear in table 5, have been calculated by making use of local government boundaries. The 2008 weights were derived by assigning the census usually resident population as at June 2007 of each regional council area to the pricing centre(s) within the region.

For three regional council areas, Bay of Plenty, Manawatu-Wanganui and Canterbury, there are two pricing centres in each region. The proportion of the regional council area population allocated to each pricing centre was based on the population of the pricing centre's territorial authority.

The four regions without a pricing centre had their populations allocated to the nearest pricing centres. The Gisborne region's population was allocated to the Napier-Hastings pricing centre, and the Marlborough, Tasman and West Coast regions were allocated to the Nelson pricing centre.

The population weights used previously were based on the census usually resident population as at June 2005.

Additional indexes and table changes

Before the 2008 review, Statistics NZ published the FPI at the subgroup and class levels of the New Zealand Household Expenditure Classification, and for sections within the meat and poultry class. Interest in the FPI has been heightened as a result of recent increases in food prices, particularly for dairy and cereal products. Therefore, expenditure weights and index numbers are now being published for sections within the milk, cheese and eggs class and for sections within the bread and cereals class. The new section indexes appear in tables 2.01, 2.02 and 2.03 (see the tables section of this Hot Off The Press).

Other table changes made as part of the review are:

• The table of non-standard series relating to fresh fruit and vegetables (previously table 3) has been removed, but the series remain publicly available.
• The table of weighted average retail prices has been renumbered from table 4 to table 3, and series reference codes have been added.
• The expenditure weights table has been renumbered from table 5 to table 4, and now includes the 2008 weights.
• The regional population weights that appeared in tables 6 and 7 have been consolidated into one table (now table 5), which now includes 2008 weights.

Other information about the FPI review

A poster which shows summary information about the 2008 FPI review is available on request and at Statistics NZ's website at: http://www.stats.govt.nz/Publications/Prices/updating-the-fpi-basket.aspx. 

Updating the food price index basket 

The CPI review

An information paper on the CPI review, including new expenditure weights, will be published on 7 October 2008. The first reweighted CPI for the September 2008 quarter will be published on 21 October 2008.

Next release ...

Food Price Index: August 2008 will be released on 11 September 2008.