Tracking Living Costs for Seniors – CPI or HLPI?

Judith A.Davey

7/11/17

Most people will have heard of the consumers’ price index (CPI), which tracks changes to the prices of items that New Zealand households buy and so provides a measure of inflation. The CPI is used by the Reserve Bank to guide monetary policy; to adjust welfare benefit rates, and by employers and employees in wage negotiations. It can help to show how adequate incomes are in relation to price rises, which is especially important for older people, most of whom have fixed incomes with little opportunity to supplement them.

Statistics NZ has been measuring consumer prices for 100 years, but the goods and services measured in the CPI have changed, reflecting the changes in New Zealand society.

“In 1914 we collected prices for sago, tapioca, treacle, and tripe. Washing machines were added to the CPI in 1949 followed by refrigerators in 1955, televisions in 1965, and home computers in 1988[1]

It took until 1955 to include private motoring and beer in the CPI basket of goods and services and a further 20 years for wine and spirits to be included. There are now 11 CPI groups: food, housing and household utilities, health, recreation and culture, education, communication, clothing and footwear, transport, alcoholic beverages and tobacco, household contents and services, and miscellaneous goods and services.

Over the 100 years, prices for consumer items have increased 7,500 percent. Annual inflation averaged 4.4 percent. It was in double digits from 1973 to 1983, peaking at 19 percent in 1987, when GST was introduced.

In the 1990s a superannuitants’ price index was published. This showed a faster rate of inflation for renters than owner-occupiers. This index was discontinued in 1999. Due to aggregation and averaging, it did not show a great deal of difference from the general CPI, especially for home owners.

More recently a new set of household living-costs price indexes (HLPIs) have been developed, which track inflation as experienced by 13 different household groups.[2] One of these is superannuitants, but the groups also include beneficiaries and Maori. There are five groups of households according to level of expenditure.

The HLPIs arose out of consumer consultation by SNZ, which pointed out that the CPI was a macroeconomic indicator and an aggregate measure, rather than truly reflecting the living costs of households. For example, the CPI does not include mortgage interest payments, only the cost of purchasing new dwellings. What was needed were extra indexes to reflect changes in the purchasing power of incomes for different demographic groups. Data from Household Economic Survey in 1973/74 made constructing special indexes for particular household groups technically feasible. The data for these measurements began in the June 2008 quarter.

Superannuitant households are where the highest-income recipient receives a New Zealand government pension[3]. The figures show that these experienced the highest annual price change over the over the first years of the HLCIs.

The most recent HCLI data is for the September 2017 quarter, released on 27 October.

Household Living-costs price indexes, recent rises: –

                                                                      September quarter       Annual change 2016-2017

Lowest expenditure household [4]          0.8%                                 2.6%

Superannuitants                                            0.9%                              2.3%

Households overall                                        0.6%                            1.9%

This shows that cost inflation for the lowest-spending households increased 2.6% in the year to September 2017, well ahead of households overall (and especially the highest spending group, at 1.5%). Superannuitant households also had higher cost inflation rates, especially in the September quarter.

According to Stats New Zealand, poorer households experienced a greater impact from increased prices for rents, insurance, cigarettes and tobacco. Do you think that this also applies to superannuitant households? If not, what made their price inflation higher than average? High home-ownership costs have played a part – for rates and insurance – as most superannuitants own their homes. Local authority rates for the September 2017 quarter rose 3.4%, reflecting an annual increase. For superannuitants the cost of rates is a larger proportion of total expenditure than it is for other groups.

High-spending households benefitted from decreased prices for telecommunication services and audio-visual equipment, which may be seen as luxury items.

I welcome your comments about what might be causing these differences and if the HLCP Indexes are more useful than the CPI. We need to keep an eye on these measurements to see how they relate to the adequacy of retirement income.

 

 

 

[1] http://www.stats.govt.nz/browse_for_stats/economic_indicators/CPI_inflation/100-years-of-cpi.aspx

[2] Household living-costs price indexes: Background

http://www.stats.govt.nz/household-living-costs-price-indexes-backgrd%20(3).pdf

[3] Similarly, beneficiary households are where the highest-income recipient receives a benefit payment.

[4] The lowest 20% in terms of household expenditure.

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One Response to Tracking Living Costs for Seniors – CPI or HLPI?

  1. lifecameos says:

    The recent rates increase was high for me as a superannuitant living on superannuation. I was single for over 30 years before I turned 65, and while I was able to buy my own home, I was not able to save a large financial reserve due to being made redundant three times during my working years. I am fortunate in that I live a a provincial city – pop approx. 80,250 – but nonetheless my rates are high for me. Electricity for my little unit is lower than many pay but it is still high for me. My dentist bill last week was high, with xrays being required after the previous one three years ago. I am forunate also in that I do not need the medical specialists that older friends and family have needed in the last few years.

    Like

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