The Political Economy of New Zealand’s Consumers Price Index

Abstract

<p>The structure of New Zealand’s Consumers Price Index has changed many times over its 100 year history. As New Zealand’s most influential and consequential official statistic the CPI performs political and distributional functions that affects ‘who gets what and when’. Some observers suggest that change in the structure of the CPI is merely the consequence of technological improvement which in turn alters the conduct of policy-making and politics. This study turns that assumption on its head by demonstrating that it is politics that has altered the technology known as the CPI. Through the examination and evaluation of the changing political and economic context that the index operates within, this thesis work finds that the CPI was transformed by the very political forces it was designed to contain. This thesis argues that because the index functions as political decision-making tool that supports the setting of salaries and wages, benefit levels and interest rates, change in the form of the index is a result of struggle among interests affected by these highly political decisions. This thesis makes its case through analysis of primary sources and official documentation relating to the development of the index. The first case study tracks the origins of the first official index in 1914, devised in order to learn what it cost a ‘working’ family to meet its basic needs through its transformation into a tool that set wages and measured price change in the wider economy. This is reinforced by a study of change to the index since the 1970s, focusing on the use of the CPI in the conduct of monetary policy that resulted in a politically driven change to the measurement of household inflation. These case studies are further supported by examination of the secondary literature on price indexes, monetary policy and institutional change theory. This thesis adds to the body of knowledge on theories of institutional change by presenting evidence of the conflict that has caused political change to the technology of the CPI.</p>