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Transport and the CPI

It seems like the “Transport Statistics” section of our blog (under the “Our Analysis” tab) needs some love, so here’s some CPI data from Statistics New Zealand. The CPI is the official measure of inflation. Each quarter, Statistics New Zealand collects information on the prices of various goods and services which are bought by consumers. They weight them accordingly, and combine all the data to estimate how much “average” prices have changed.

However, the prices of individual goods and services can be very different from the headline CPI figure. We all know that you can get a far better TV for $1,000 today than you could ten years ago, and the same is true for most appliances, and most retail goods for that matter. On the other hand, petrol prices have increased much faster than inflation generally, i.e. the “real” or inflation-adjusted price of petrol has risen rapidly. Petrol prices are covered elsewhere on the blog, so I won’t rehash them here.

It’s data time

The following graphs show the “real” price of various transport-related goods and services. I’ve adjusted their index values based on the headline CPI figure. As such, if a trendline stays flat, it means prices have remained flat in “real” terms, or in nominal terms, they’ve increased as fast as inflation generally. If it goes up, prices have increased faster than the headline CPI – real prices have increased – and vice versa.

Prices for “vehicle servicing and repairs”, and “vehicle parts and accessories”

As shown in the graph below, real prices for “vehicle servicing and repairs” dropped through the 1980s, stayed fairly flat throughout the 1990s, and have risen again (quite slowly) since around 2000. Price data for “vehicle parts and accessories” has only been collected since 1999, and real prices for those have been pretty flat ever since.

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Prices for international and domestic air travel

Air travel is a fascinating one. International flights in the early ’80s were very expensive – in real terms, around four times more expensive than they are today. Prices plummeted in 1986-7, as the government deregulated the aviation sector, privatised Air New Zealand, and made it much easier for international competitors to enter the market. In the last 25 years, real prices have continued to fall, albeit more slowly. In particular, I want to highlight that prices have still fallen over the last decade, despite oil prices (and jet fuel) becoming much more expensive. Airlines today have a very different cost structure than they did 10-15 years ago, and fuel is a much larger contributor to overall costs – but improvements elsewhere have resulted in prices continuing to fall.

Domestic air travel is a different kettle of fish. Real prices have stayed roughly flat for the last 30 years, notwithstanding some big fluctuations. Air New Zealand has had a dominant market share throughout this time, and various competitors have come and gone. However, it wouldn’t be fair to blame the price trends here on a lack of competition; other airlines are free to ramp up their presence in the market, whether on major trunk routes, or the regional routes where Air New Zealand is often the only operator.

Again, I think it’s interesting to highlight that, despite major increases in fuel prices since the early 2000s, there hasn’t been a persistent effect on the price of air travel, which remains as affordable today as it was a decade ago.

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Prices for motor vehicles (and bicycles)

The final graph looks at price trends for motor vehicles (and bicycles). These all show a fairly similar picture – real prices have fallen significantly in the last 30 years. The largest drop, apparently, has been for bikes. Car prices fell from the late 80s, as the sector was deregulated progressively. In particular, New Zealand began to import large numbers of used cars – the “Jap imports” – which, over the last 20 years, have accounted for well over half of all the cars we’ve brought in.

Over the last 15 years, prices for new cars, second-hand cars and motorbikes have followed a fairly similar path.

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Quality changes in motor vehicles

However, there’s more to the picture here, and something which I think affects vehicles in particular (not so much the earlier price categories I looked at). The CPI is a “quality adjusted” index. It attempts to measure changes in price over time, for products of constant quality. Often, Statistics New Zealand need to make judgments about quality changes for particular products, and factor that in to their calculations. This isn’t an issue for things like flour or 91-octane petrol, which haven’t changed much in the last 30 years, but it’s a much bigger issue for things like TVs: today’s TVs are much better than the ones from 1981!

It’s also an issue for cars, where major quality improvements have occurred. Not so much in the area of fuel efficiency, but certainly in most other ways. Statistics New Zealand look at this here. The result is that, while “real” prices for cars of constant quality have fallen, today’s cars are better quality. Overall, the “real” price for the cars actually being bought by consumers has stayed fairly flat since 2001, rather than decreasing significantly.

5 comments to Transport and the CPI

  • Ari

    Good point regarding quality. It is often missed in the bigger picture with CPI. Particularly in consumer electronics where prices dropped through the floor and the features of the products dramatically improved. I am surprised with the international air travel prices though. Very interesting.

  • JohnP

    My daughter made me ride on a bus the other day. I can confirm that there hasn’t been much change in quality there. If a car company produced cars with seats as bad as a bus they would go out of business.

    • George D

      Buses go up and down the quality scale. We have a few good ones, plenty of average ones, and a few bad ones. Quality is important – people notice things like ride quality, and make transport decisions accordingly.

  • jonno1

    Very interesting, thank you John. However I was becoming a bit puzzled until I reached your last section regarding the like-for-like cost of cars. This also highlights the fact that fuel price is a relatively small part of the overall cost of car ownership, as we all know. Sure, it hurts immediately when the pump price goes up a bit, but it hurts a lot more when your $40,000 car is worth only $10-12,000 just a few years later. Even worse if you buy European. BTW, I have a friend who trades in his Porsche every year at a cost of about $50,000. He reckons it saves him money (no, I don’t get it either).

    I’ve noticed a lot more variability in pump prices recently (on the same day), as much as 10c/l, which coupled with supermarket vouchers or AA card credits reduces the actual cost quite significantly. At times I’ve “saved” $35 on a fill with a 40c voucher. I wonder if that’s a consequence of the reduction in overall VKT that has been highlighted here recently. If so, it’s a good example of competition working, viz a viz Watercare who campaigned on leaky taps a while back then pushed up their rates when sales decreased.

    • John Polkinghorne

      I’ve also noticed more variability in pump prices… and I’m not quite sure if it’s anything to do with VKT, or what might be causing it. But I’m perfectly happy with the variation, since a bit of price discrimination is often welfare-enhancing. I’ve wondered if this may be a reason why supermarket fuel vouchers have stuck around so long (about seven years and counting, in fact). The customers who are prepared to pay a little more will do so, and those who aren’t, won’t.

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