Inflation and the basket of goods - New Zealand

New Zealand has added craft beer to the basket of goods it monitors to measure inflation, reflecting changing tastes and consumer spending in the South Pacific nation.

“New Zealand used to be called a country of rugby, racing and beer but spending patterns are changing,” Jason Attewell, senior manager at Statistics New Zealand in Wellington, said Friday. “Kiwis are increasingly keen on craft beer, body massages at beauty spas and football club memberships.”

Craft beer has surged in popularity in New Zealand, while high-speed internet has encouraged new web-based services like Netflix at the expense of older technologies. The statistics agency said DVD players and sewing machines were among items removed from the Consumers Price Index after its three-yearly review, and Uber rides and Airbnb accommodation were among services added.

Attewell said the agency was "introducing the sharing economy to the CPI to keep it relevant for New Zealand."

"We added the electric light bulb to the basket in the 1920s, televisions and record players in the 1960s, microwaves and car stereos in the 1980s, and MP3 players and digital cameras in the 2000s,” he said. “As these items go out of fashion they are removed from the basket."

As well as components of the basket, Statistics New Zealand reviews the relative contribution of the main categories within the CPI. Food now makes up 19.3 percent of the gauge, up from 18.8 percent, due to increased spending at restaurants and rising prices, the agency said.

Inflation was 1.9 percent in the year through September, near the midpoint of the 1-3 percent range the central bank targets. The fourth-quarter report is due Jan. 25.

Unit 1: Market Failure - Pack Of Cigarettes 'May Rise To $100' In NZ

The cost of a packet of cigarettes in New Zealand could rise to as much as $100 dollars - around £50 - by 2020 amid moves to stamp out smoking.

The Ministry of Health wants New Zealand to be smoke free by 2025 and the suggested increase gives the first hint of the drastic measures being discussed.

A document released under the Official Information Act to the country's 3 News website features a number of pricing scenarios - with the most extreme showing a single cigarette costing the equivalent of £2.50.

One option being considered is a 10% increase on a pack of 20 cigarettes year-on-year from 2013 to 2025, meaning it would cost $40 (£20) a pack by 2024.

But a second scenario would see packs at $100 each by 2020, achieved by an immediate shock rise of 30% to 60%, with on-going increases of 30% each year after that.

New Zealand aims to be smoke free by 2025

This model would reach the 2025 target to stamp out smoking completely, but is described in the paper as "probably unrealistic".

The most likely model would see a shock tax increase next year, and then a 10%-a-year rise, which would mean a packet of cigarettes costs around $60 (£30) by 2025.

Other ideas discussed in the document include regulating tobacco as a highly toxic substance, a ban on smoking in cars with children, a doubling of anti-smoking media campaigns and removing tobacco from duty-free sale.

The briefing paper said: "If we are to continue to lower smoking prevalence we need to both increase the numbers who successfully quit smoking, and reduce smoking initiation among young people.

"Tobacco taxation is the single most effective intervention available to drive down smoking prevalence figures."

The Ministry of Health has said that the paper is an internal policy discussion and does not represent Government policy.

Questions for discussion:

• Why is smoking an example of market failure?
• Do you think these policies will work?
• Which policy do you think would be the most effective and why?
• If you think yes, why then does the government not want to introduce them (see last sentence)?