NEW PRICES INDEX

Otago Daily Times, Issue 25101, 17 December 1942, Page 6

NEW PRICES INDEX

A WAR-TIME BASIS COMPLEX NATURE OF TASK One of the most important and Interesting tasks Involved in the Government's preliminary planning for economic stabilisation has been the preparation of the new war-time prices index, says an official statement.

Obviously enough, if major fluctuations in the cost of living are to be prevented, it is necessary to have a sensitive and reliable measure of changes in the cost of living. In the past the only indicator cf the cost of living has been the Government Statistician's retail, prices index. The Government Statistician has, however, always insisted that this index cannot 1 correctly be called a cost-of-living index; and particularly since tire outbreak of war the Government has been receiving complaints from consumers that the movements in the retail prices index do not square with their experience. A Useful Guide It is only fair to say, the statement continues, that, in spite of certain defects, the retail prices l index is much more reliable than is commonly supposed. The Government often receives letters from consumers giving the price ■ increases in long lists of commodities. The consumers strike an average of these increases, and point out that this average is very much greater than the increase shown in the retail price index. What these consumers forget is that the commodities they list usually account for a very small percentage of their total expenditure. A very large part of every household’s expenditure is on meat, bread, and dairy produce, commodities which have been stable in price for the greater part of the war. „ . , Nevertheless, the Government became conscious that the retail prices index had certain inadequacies as a guide to movements in the cost of living. This index is based on a survey of family budgets carried out in 1930 in order to determine how much people were spending on certain main groups of commodities and services, e.g., food, rent, fuel and light, etc., and also to determine the relative expenditure on the various items within these groups; But the consumption habits of the people are continuously changing, and even before the war, the retail prices index was in need of revision. For instance. there has been a marked swing over from meat to vegetables; and the old retail prices index does fresh vegetables into account at all. Again, the average household now uses 35 times as much electricity as it did in 1930. Changing Conditions The war increased the unsuitability of the retail prices index. Some commodities included in the index disappeared from the market and the supply of others became spasmodic, while changes in consumers' habits were accelerated. In January, 1942, therefore, the Government set up a committee charged with the task of preparing a new war-time prices index. The word " war-time ” was stressed. The committee’s principal object was to devise an indicator of price changes in commodities entering into the cost of living which would have the confidence of the people of New Zealand. The’ new index covers the goods and the services really needed for the average family in time of war. Luxuries are eliminated.

It would not be possible, without getting involved in technicalities, the statement adds, to describe in detail the problems the committee dealt with and the differences between the old retail prices index and the new war-time prices index. Some points of exceptional interest can, however, be mentioned. Provision for Vegetables

As has been said, the old index took no account of fresh vegetables. The Index Committee left that, because vegetables were an increasingly important item in the national diet, this deficiency should be remedied. For two main reasons the task was a difficult one. First, vegetables are not a standardised product. No two cabbages are the same, and it is therefore difficult to measure changes in cabbage prices. Secondly, there is no generally accepted unit of measurement for vegetables. Sometimes they are sold by weight, sometimes by number, and sometimes by volume.

To minimise these difficulties vegetables were selected which could be sold by weight and are generally available throughout the year. In order that carrots might be included, the Government has introduced regulations providing that they must be sold by weight and not by the bunch. After careful investigation it was found practicable to Include cabbages, parsnips, carrots, and swedes in addition to potatoes and onions. Incidentally, potatoes and onions are listed as groceries because they are usually sold in grocers’ shops. Fresh fruit presents much the same difficulties as vegetables: the items included in the index are apples and lemons. ' A Vital Change

An important and even a revolutionary aspect of the new index, says the official statement, is its connection with the problem of industrial standardisation. This connection is best seen in the case of footwear. If changes in the prices of footwear are to be measured accurately, ■it is essential that the items used in the index should be precisely defined and generally available. In dealing with footwear, the Index Committee defined its standards to conform to the war-time production situation, having particular regard to the need for economising materials and labour. The next step was that the Government, with the assistance of the footwear manufacturers, took steps to ensure that the standard lines used in the index should be manufactured in adequate quantities. Thus the people of New Zealand will be assured of an adequate supply of certain lines of footwear of standard design and quality at fixed prices. Production, in other words, is being geared to consumer needs. It is contemplated that similar steps will be taken with some other manufactured commodities included in the new index.

The war-time prices index, the statement concludes, has been designed as an instrument to give a faithful measurement of any changes in the prices of goods and services which it covers, should such changes occur. The Government’s stabilisation policy is designed to prevent major changes occurring. Fifty of the commodities covered by the new index have already been stabilised. More will be stabilised, and in some cases reductions in prices through improved methods of production may compensate for unavoidable increases in some few items.