STATISTICS OF PRICES.

Taranaki Daily News, 14 May 1921, Page 6

STATISTICS OF PRICES.

NOT COST OF LIVING INDEX.

FIXED QUANTITY AS BASIS.

STATISTICIAN'S EXPLANATION.

An article in the Abstract of Statistics emphasises the difference between changes in retail prices and changes in the cost of living. It says the index numbers compiled by the Government Statistician “are designed solely for the purpose of measuring movements in the level of retail prices. /They do not measure movements in the cost of living,” if by that term is meant variations in the actual household expenditure on food, rent, clothing, etc. Were households to maintain the same standard of living (i.e., to purchase for consumption the same quantity of similar quality goods) as existed in the base period, then the index numbers, for the commodities they cover, would also accurately represent changes in ‘cost of living.’ In this Sense, movements in ‘cost of living’ are governed not so much by the movement in retail prices as by the scope of the household income, within the limits of which expenditure must be kept whatever the price movement. The effect of increases in price on the ‘cost of living’ in this sense, if the income does not also correspondingly expand, is to vary the proportions devoted to the respective groups of commodities—increased expenditure on the more essential necessaries, food, housing, etc., being effected by economies in the less essential necessaries, such as clothing and other miscellaneous items.

“It would be quite impracticable to obtain data from month to month of the change in consumption of the various commodities even if index numbers could be compiled therefrom. The quantity of the various commodities consumed—the ‘regimen’ —is the standard of measure, and the variations and movements in the other factor, ‘price’, and these only, are what is measured. As an indication of the variations in the ‘cost of living’ (using the term in either sense), so long as the ‘regimen’ is true to common usage, and so far as the ‘regimen’ covers the whole of the commodities entering into the household budget, the index, number on this basis is the most accurate and reliable guide obtainable.

“The ‘regimen’ adopted covers only the expenditure on food, house-rent and fuel and light, representing 'in the base period, some three-fifths of the household expenditure; and therefore, in dealing with or using the index rfiimbers, it should always be borne in mind that the movements shown do not cover the whole field, and refer only to this portion of the expenditure. The index number will reflect the movement in price of the whole of the expenditure only if the prices relating to the other two-fifths not covered have moved in the same direction and to the same extent, on the average. So far as the ‘regimen’ covers the household expenditure, the household budgets collected in 1919 show that it is still closely in accord with common usage.

“The next point to notice is that the weights assigned to the different commodities in the ‘regimen’ are based or the consumption of the year, and the truest measure is the index of one year compared with the index for any lesser period—a month, a quarter, or a halfyear—a closer regard must be had to the cause of the movement, since owing to seasonal and other changes in supply on account of price, taste, or otherwise, variations in the household consumption* of certain commodities included in the ‘regimen’ do undoubtedly take place, and consequently at such times the price movement, which alone is reflected in the index, diverges most from the expenditure movement.

“As in the case of the selection of commodities for the ‘regimen,’ common usage also governs the prices quoted by retailers. The retail prices used in the compilation of the index number are the average predominant prices—i.e., the arithmetic prices disclosed by a number of returns from each centre which quote the prices for the grade or quality of goods in respect of which the respective tradesmen make the bulk of their sales. In seasonal commodities such as potatoes the change-over from the old to the new always involves a step in price. This step is not, however, taken immediately the new commodity comes on the market, nor at any arbitrary period throughout the Dominion determined by the Census and Statistics Office, but by the consuming public; as soon as a tradesman is selling more new potatoes than old, he returns the new price, but not till then. The. month in which ihe new price comes into common use varies in different centres, and in different towns. Consequently the movement in the index number in this case is actually in sympathy with the ‘expenditure.’ ”