Methods for Constructing Spatial Cost of Living Indexes

This report, commissioned by Statistics NZ, investigates the construction of spatial cost of living indexes for New Zealand. The report address the conceptual and methodological, as well as practical, issues concerning the construction of spatial price indexes. The report begins by outlining its motivation and goals and then sets out the various conceptual approaches to price index construction; the cost-of-living and cost-of-goods perspectives as well as the acquisitions, uses and payments approaches to index construction. These are discussed in the somewhat novel context of spatial{as opposed to temporal{ price comparisons. Some particularly problematic headings both conceptually and practically{such as housing{are discussed at length. The report outlines international practice in the construction of spatial price indexes which may be of some use to Statistics NZ. The computation of spatial price requires the choice of an index number formula, a multilateral method, an approach to aggregation, and the choice of weights amongst other decisions. These choices are discussed in detail and some guidance is provided on what the most appropriate method may be for Statistics NZ. The authors take a look at the data currently available to Statistics NZ in the various product groups and discuss how this might be used, and what additional data may be required, in the construction of spatial price indexes. The nal section contains

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