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War Economy

The Wartime Prices Index

The Wartime Prices Index

The economic stabilisation scheme put responsibility for stabilisation into the hands of the Economic Stabilisation Commission, strengthened the controls available to restrain price, wage and cost increases, allowed for a rather more widespread use of subsidies to offset those cost increases which could not be avoided, gave the Commission a modest safety margin, and made it clear that stabilisation was now to become a fact as well as an objective. The measure of the Commission's success was to be the Wartime Prices Index. The safety margin was the 2 ½ per cent the index could rise before wages or farm payouts would be allowed to increase.

The Index Committee, in outlining problems in the construction of the index, emphasised the need for an expenditure pattern which would take into account the changed availability of goods and services in time of war. It said,1 ‘If … the peacetime index continues to be used as an indicator of changes in the wartime cost of living, then misleading and illusory results are likely to be obtained. To do so is to ignore the changes in the quantities and kinds of goods and services actually available, and goods that are rationed or otherwise in short supply would consequently be overweighted in relation to current consumption.’

Equally important, however, was that pricing should extend over a group of items which, while covering all essential requirements for an average family, did not include too many items whose prices would be difficult to hold reasonably stable.

The regimen2 of the new index covered 238 items, which made possible a reasonable representation of consumer expenditure. The previous index, the 1926–30 based Retail Prices Index, contained only 203 items.

In selecting items, the Index Committee was guided by the recommendations of the Economic Stabilisation Conference. The Committee's report said:3

‘In determining the regimen the Index Committee was guided throughout by the basic principle that the items included should be standard utility articles representing the reasonable requirements of average families with average incomes, although no precise statistical definition of the terms involved was attempted. Only such items were therefore included as could be regarded as coming within the scope of Recommendation No. 6 of the

1 Parliamentary Paper H-43, 1944, p. 4.

2 The regimen of a price index is the list of items to be priced, the units of measurement to be used and the weights expressing each item's relative importance.

3 Parliamentary Paper H-43, 1944, p. 7.

page 310 Economic Stabilisation Conference (i.e., essential foodstuffs, essential standard articles of clothing, footwear, and household necessities, public services, fuel, and light and rent).

‘The index thus relates to the essential requirements entering into the cost of living of the average New Zealand household, and is not limited to what is commonly termed the “working class” standard of living. In this connection it may be noted that in New Zealand social stratification does not show the wide cleavages common to older countries, industrialisation is limited, and the dispersion of incomes relatively small, these factors making for a more uniform standard of living than is possible in countries with more complex social and economic structures.’

An innovation in the Wartime Prices Index was the inclusion of fresh fruits and vegetables in the regimen. This necessitated a careful study of seasonal changes in supply and price of these commodities. A not unrelated new feature of price control in 1943 was the fixing of maximum retail prices for many kinds of vegetables, apples, pears, and certain other fruits; these maxima made allowance for seasonal variations in supply and in prices.1

The items included in the Wartime Prices Index are of interest because of the central part the index played in economic stabilisation, and also because, with a few relatively minor additions and exclusions, the prices of the same items were stabilised at their level on 15 December 1942.2 The full list of items in the index is given in Appendix II.

The persistent rise in prices of imported goods, combined with other unavoidable cost increases, and the general shortage of goods, services and labour, made it inevitable that there would have to be extensive use of subsidies to keep retail prices stable. However, the scheme was designed to reduce the need for subsidies where possible. With the experience of the rapid rise in import prices in the first half of the war, the natural tendency was to concentrate the index regimen on locally made goods as far as possible.

The following table shows the group weights of the Wartime Prices Index, that is, it indicates the relative importance given to price changes in each group of items.

The Wartime Prices Index became the only published index of retail prices. The Director of Stabilisation wrote to his Minister on 4 June 1943:

‘With reference to your minute of the 11th instant regarding the publication of the Government Statistician's Retail Prices

1 A reference by the Chairman of the Price Tribunal to this extension is given on p. 304.

2 The distinction between price control and price stabilisation is outlined on p. 301, note 1.

page 311
Wartime Prices Index
Group Weight (per cent)  
Food Group    
Groceries 13·0  
Dairy produce 10·0  
Meat 10·0  
Fresh fruits 3·0  
Fresh vegetables 3·0  
Total —— 39·0
Rent 25·0  
Fuel and light 7·0  
Clothing, footwear and household drapery    
Clothing and footwear 14·0  
Household drapery 1·0  
Total —— 15·0
Fares 4·5  
Crockery 0·5  
Furniture 2·0  
Household cleaning 1·5  
Ironmongery and hardware 0·5  
Papers and school stationery 2·0  
Toilet and personal services 1·0  
Postages and telegrams 0·5  
Tobacco 1·5  
Total —— 14·0
Total, All Groups 100·0  

Index for January 1943; in view of the fact that the Federation of Labour Conference has met and unanimously approved of the Stabilisation scheme it now appears to be neither necessary nor desirable that the above Index figures should be published.

‘It is therefore recommended that publication of the Retail Prices Index be discontinued from 31 December 1942, but that the Government Statistician continue to compile the index so as to preserve the continuity of the series.’1

This received the Minister's concurrence, and the Government

1 Copy on Department of Statistics file 100/20/43.

page 312 Statistician, when it was referred to him, wrote ‘Long since in operation.’