Capital Goods Price Index: December 2009 quarter

Index coverage

The capital goods price index (CGPI) provides a measure of the price level changes for physical capital assets purchased by producers of goods and services throughout the economy.

Exclusions from index

Large value items that are non-recurring and/or manufactured to customer specifications (such as aircraft and ships) have been excluded from the price survey. Second-hand equipment (such as cars) has also been excluded from the index.

Calculation

The CGPI is a Laspeyres base-weighted price index series. The weights of the commodities are determined by the relative importance within each of the asset type indexes. Weighting information has been derived from statistics on external trade, manufacturing and building, and vehicle registrations, as well as discussions with manufacturers, importers, wholesalers, and retailers. Data for several years have been used, as expenditure on capital goods can be irregular. GST is excluded from prices used in this index because it is recoverable for GST-registered businesses.

Data quality

All care has been used in surveying, processing, analysing, and extracting the data for the CGPI. However, all data are subject to possible statistical uncertainty. These variations may result, for example, from uncertainty introduced during non-response imputation, or from reporting difficulties for respondents, or errors made during processing survey results. Statistics New Zealand adopts procedures to detect and minimise avoidable variation and eliminate errors, but they may still occur and they are not quantifiable. At higher levels of aggregation, much of the individual variability often cancels out. The CGPI data has been checked at published and underlying level indexes to identify any remaining detectable errors and uncertainty, and these are corrected or re-estimated, where possible. Ongoing work to redevelop, reweight, and enhance price indexes has the potential to change the underlying indexes. Accordingly, this data may be subject to revisions in the future.

Price index development 

A review of the plant, machinery, and equipment index was implemented in the December 2009 quarter. The review encompassed reselecting and reweighting the basket of representative goods, to ensure the basket continues to reflect changes in prices for capital plant, machinery, and equipment.

The updated asset type weights are:

Within the computer machinery index, computer-related price indexes from the United States have been introduced as a proxy to measure the price change for computer machinery. The United States indexes, which are lagged one quarter to reflect a potential delay from the time that new technology is available in the United States to the time it is in available in New Zealand, are exchange rate adjusted. The United States indexes are compiled using hedonic quality adjustment techniques designed to remove the effect of quality improvements and to isolate pure price change. The approach now being used for the computer machinery index is consistent with the approach being used in the import price index and for quarterly constant price imports in GDP.

Coverage

The index is calculated quarterly from price quotes collected by postal survey. Approximately 13,000 individual commodity items are surveyed from about 3,000 respondents to provide prices for use in the CGPI and other business price indexes. When calculating the CGPI, prices collected on the fifteenth day of the middle month of the quarter are generally used to represent the entire quarter. Prices collected for imported goods are often denominated in foreign currencies. These currencies are converted to New Zealand dollars using the exchange rate at the time of pricing.

Contract indexation

Parties that engage in commercial contracts use a range of price indexes produced by Statistics NZ in their indexation clauses (also known as contract escalation clauses). An indexation clause provides both parties to a contract with an agreed procedure for adjusting an originally contracted price, to reflect changes in costs or prices during the life of the contract. 

Contract indexation: A Guide for Businesses provides information on the price indexes Statistics NZ produces and issues relating to their use in indexation clauses. The guide also outlines some points to consider when preparing an indexation clause, and includes an example of the mechanics of a simple indexation formula.

Index series available online

To access more data from the CGPI series, go to Infoshare on the Statistics NZ website (www.stats.govt.nz) and choose:

Subject category: Economic indicators
Group: Capital Goods Price Index.

The time series can be downloaded in Excel or comma delimited format, where percentage movements can be calculated using the following formula: ((Index number for later period minus index number for earlier period) divided by index number for earlier period) multiplied by 100.

More information about Infoshare can be found on our website.

More information

For more information, follow the link from the 'Technical notes' section of this release on the Statistics New Zealand website.

Copyright

Information obtained from Statistics NZ may be freely used, reproduced, or quoted unless otherwise specified. In all cases Statistics NZ must be acknowledged as the source.

Liability

While care has been used in processing, analysing and extracting information, Statistics NZ gives no warranty that the information supplied is free from error. Statistics NZ shall not be liable for any loss suffered through the use, directly or indirectly, of any information, product or service.

Timing

Timed statistical releases are delivered using postal and electronic services provided by third parties. Delivery of these releases may be delayed by circumstances outside the control of Statistics NZ. Statistics NZ accepts no responsibility for any such delays.