ep 363 | What’s the Consumers Price Index anyway?
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What is the Consumer Price Index and why is it important?
Welcome to On Point. I'm Mark Lister, Investment Director at Craig's Investment Partners, and I'll be talking about a range of topics including economics, portfolio strategy, investor education, and anything else that's happening out there in financial markets.
hey team hope you're all well i've had a lot of questions lately about inflation and not just where is it going why does that matter what might it mean for interest rates but also how do we even measure it what is the consumer price index and can we trust the figures because to us they feel like they're maybe just underestimating what we're really seeing in terms of cost increases so Let's dive into that and let's try and address that topic.
Now, inflation is always a hot topic in financial markets and it's even more prominent at the moment because you've got fuel prices that are pushing inflation higher and that's expected to gather momentum. over the next quarter or two. There is also a very healthy cynicism about those official figures.
And a lot of people, for as long as I can remember, have argued to me and elsewhere that their own cost of living has increased by more than those official figures would suggest. So in New Zealand, the key inflation measure we have is the Consumer's Price Index, the CPI.
and that is calculated by stats nz so what it does or what it's designed to do is it measures changes in the cost of living that households are facing and it does that by tracking the prices of individual items that make up a representative basket of goods and services and that is the key thing that is why it's different for everyone you've got this representative basket of goods and services and it's a bit of a one-size-fits-all it's not going to be perfect for everyone because our spending habits are all a little bit different but anyway this basket right now includes almost 600 different items 598 items to be precise so every quarter stats nz goes out there it gets on the phones and it collects about 100 000 prices
Visiting supermarkets, visiting shops, that sort of thing. Sending out surveys to businesses, looking at websites, getting evidence of where current prices are at. And they review what's in that basket every few years to ensure that it's still relevant because our spending patterns change. new products come about that didn't exist before and old products become obsolete so it's actually really interesting you can go on their website and dig through all the previous data but looking back into the adjustments to that cpi basket over the decades is really fascinating actually and it highlights some of the consumer trends that we've seen come and go so If you look back to the 1970s, Savallois audio cassettes were added.
In the 1980s, waterbeds, wine coolers were added. In the 2000s, soy milk, hummus entered the fray. In 2020, vaping devices and home exercise equipment were added. That latter one, that would have been related to the lockdowns. We couldn't go to the gym like we used to, so we bought some home exercise gear. And the last update, which came in 2024, meal kits were added you know they didn't exist 20 years ago did they and streaming services were included too so lots of items have been added over the decades and lots of items have been removed over the last 30 odd years too compact discs used to be there they're not anymore cordless telephones not there anymore dictionaries you know you don't buy a dictionary because you've got
a dictionary on your phone.
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