The course of prices is of interest both to Government and to citizens in a modern State. For a country as dependent as New Zealand on foreign trade, changes in import and export price levels are of crucial importance and have a direct bearing on the general prosperity of the economy. The level of internal retail prices is of importance as an indicator of changes in purchasing power. The retail price index is consequently a central piece of evidence when the Court of Arbitration is considering an application for a general wage order.
The importance of price movements in these and other fields led to an early development of official indices of retail, wholesale, export, and import price indices. These became available at the beginning of the century. No official price indices exist for other than the last few years of the nineteenth century, although a study on the course of prices from 1861–1910 by J. W. McIlraith gives valuable information on price movements during that period.
Only scattered records are available of prices prior to 1861. The “blue book” returned in 1851 to the United Kingdom by the colonial administration records the following commodity prices (1965 prices and subsidies are added for comparison):
| 1851 | January 1965 | (Subsidy Jan 1963) | |
| Wheaten bread | 3d. per lb loaf | 4·31d. | 2·16d. |
| Milk | 4d. per quart | 9·28d. | 4·10d. |
| Butter | 1s. per lb | 2s. | 8d. |
| Cheese | 1s. per lb | 2s. 2·13d. | .. |
| Tea | 1s. 3d.–1s. 6d. per lb | 6s. 5·63d. | .. |
In the early years of the colony there was evidence of considerable variation in prices between settlements and throughout the year. Because of the high cost of transport associated with scattered settlement and the geographical remoteness of New Zealand, prices in New Zealand were generally higher than those in the United Kingdom. Some idea of the transport problems of the time is given by the fact that in 1857 letters moving from Auckland to Wellington were carried via Sydney.
The gold discoveries of the early sixties stimulated immigration and led to a sudden growth of population which, in turn, caused a rapid increase in the demand for goods, with a consequent rise in prices. A subsequent decline in gold production was followed by a fall in prices to a level below that at the beginning of the decade. Julius Vogel's public works policy (first enunciated in June 1870) and an associated cheap land policy led to a further boom in prices in the early seventies, but by 1874 prices had again begun to fall. This time the fall proved to be the beginning of a prolonged downwards movement which lasted to the middle 1890s. This was a period of depression for New Zealand marked by low export prices and the collapse of the land-settlement policy. “In many districts the majority of land holders were ruined, their properties were surrendered to the mortgagees many of whom suffered the same fate, the principal one – the Bank of New Zealand – receiving so heavy a blow through the properties thrown back on its hands that in 1894 its manager warned the Colonial Treasurer that unless the Government came to the bank's assistance within a day or two the country would suffer the worst crisis in its history.”
The 1890s marked the beginning of a recovery for New Zealand and this was reflected in a general upturn in price levels. The expansion of frozen meat and butter, and cheese exports, mainly to the United Kingdom, gave underlying strength to this movement. It was also associated with an upturn in United Kingdom price levels.
From 1900 to the beginning of the 1914–18 War, prices remained fairly steady, but in 1914 a sharp upturn occurred which lasted through to 1920. With the retail price index averaging an 8 per cent per annum rise, these years rank as New Zealand's most serious period of inflation. The 1920s saw again a stable price level which lasted through to the fall associated with the great depression. Export prices began to rise in 1936 and this movement was paralleled by a rise in retail prices.
During the 1939–45 War and up to 1949, retail prices rose at an average rate of rather more than 3 per cent per annum. The absence of the sharp rise usually associated with wartime was due to the imposition of price control, supplemented by direct subsidies on many essentials. The early 1950s brought a sharp rise in export prices, mainly from the wool boom associated with the Korean War. From 1953 onwards the rise in prices continued at a lower rate (about 4 per cent), the average increase for the whole decade being nearly 5 per cent per annum.
The Department of Statistics maintains a consumers' price index based on 1952–53 consumption and assessed at 1955 prices. In constructing such an index it is necessary to determine as accurately as possible the standard “basket” of goods consumed by the group to which the index refers. The New Zealand index relates primarily to urban dwellers living as families, and is representative of about 85 per cent of personal expenditures. To do this the index takes account of the prices of 375 goods and services ranging from bananas to babies' napkins, and from petrol to peanut butter. The compilation of such a basket of goods and services and the assigning of correct weight or emphasis to the price of each commodity is a major operation. Sources of group and commodity weights were obtained from statistics of goods available for consumption, from the survey of nearly all retail establishments included in the 1953 Census of Distribution, and from a 1952–53 survey of household budgets conducted by the Public Service Association. From the beginning of 1966, a revised consumers' price index becomes effective. Its base is quantitative consumption patterns of 1962–63 costed at the average of prices ruling throughout the year 1965.
The index is maintained by the regular collection of prices of all the 375 commodities, and changes in these prices influence the level of the index in proportion to their initial 1955 weight. As well as revealing changes in the general retail price level, sub-indexes are compiled for the main New Zealand towns and for the major groups of household expenditure, e.g., food, housing, and apparel. The index for each group in 1955 is 1000 – this represents a separate starting point for each group and does not imply any equivalence between them. The percentages of base expenditure represented by each group are shown in the first row.
by John Victor Tuwhakahewa Baker, M.A., M.COM., D.P.A., Government Statistician, Wellington.