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GST rise impacts on CPI

 

The consumers price index (CPI) rose 2.3 percent for the December 2010 quarter, Statistics New Zealand said today. Prices were affected by a rise in goods and services tax (GST) on 1 October 2010. "This is the largest quarterly increase in the CPI since a 3.5 percent rise in the September 1989 quarter, when GST also rose," Statistics NZ's prices manager Chris Pike said.

In the December 2010 quarter, the transport group rose 4.3 percent, with petrol prices up 6.8 percent and a seasonal increase of 5.5 percent for international air fares. Food prices rose 2.1 percent, and housing and household utility prices rose 1.6 percent (prices for the purchase of new housing were up 2.0 percent, property maintenance services up 4.4 percent, and electricity up 1.7 percent).

The CPI increased 4.0 percent for the year to the December 2010 quarter, influenced by the rise in GST. This is the largest annual increase since a 5.1 percent increase in the year to the September 2008 quarter (when petrol prices peaked). In the year to the December 2010 quarter, significant upward contributions came from higher prices for food (up 4.6 percent), petrol (up 14.2 percent), and cigarettes and tobacco (up 17.0 percent).

The rate of GST rose from 12.5 percent to 15 percent on 1 October 2010. This increase could raise retail prices that are subject to GST by 2.22 percent. For example, a product priced at $100 (excluding GST) would have sold for $112.50 before 1 October. When GST increased to 15 percent, that product would retail for $115 (all other things being equal), which gives a 2.2 percent increase in its price. 

Of prices collected by visiting shops in the middle of the December 2010 quarter (which excludes those collected monthly or by postal survey), about one in 10 prices rose 2.0 to 2.5 percent (in line with GST), one in four rose more than 2.5 percent, and one in two did not change.

Not all goods and services in the CPI basket are subject to GST – about 91 percent of the cost of the CPI basket is directly affected by the rise in GST. This would result in an increase of about 2.0 percent in the CPI if all other things remained equal.

The CPI measures the rate of price change of goods and services purchased by households. Statistics NZ visits 3,000 shops around New Zealand to collect prices for the CPI and check product sizes and features. 

Dallas Welch (Mrs) 20 January 2011

Acting Government Statistician