Did Stats NZ needlessly exacerbate an inflation rise by choosing the wrong blockbuster games?
Analysis: Not since 1980, when Robert Muldoon derided pop culture as “not culture”, has the importance of computer games been so inflated in the beltway.
Muldoon had refused pleas to remove a 40 percent sales duty on records. So, riding high on the success of their chart-topping single “Computer Games”, the Kiwi band Mi-Sex invited the Prime Minister and his daughter to their Wellington concert to prove that their culture was just as high as that of Kiri Te Kanawa, with whom Muldoon had unfavourably contrasted them.
Reportedly his daughter loved the concert (“Com-pu-pu-pu-puter games,” the crowd echoed the well-known lyric) but this country’s mercurial leader remained unimpressed. He did not relent on his sales tax, saying the concert was about as cultural as the TV wrestling show On the Mat. “The records sold in this country are not Kiri Te Kanawa’s, they are 50 to 1 those horrible pop groups and I’m not going to take the tax off them.”
Now, Wellington officials are referring to computer games on a different Top 10: the gaming charts. Stats NZ’s reliance on the vagaries of those Top 10 lists has sparked accusations that they are inadvertently overstating the rising costs of gaming, thereby adding an extra 0.3 percent to the Consumers Price Index (CPI) that drives other price and wage increases.
This month, Newsroom reported that amid all the talk of soaring rents and petrol prices, there was an unexpected and significant new contributor to NZ’s high inflation: the cost of video games.
That’s not just bad news for those more economically vulnerable players for whom gaming provides a community, and physical and intellectual stimulation. It’s also bad news for the rest of us.
The sharp (though unpublished) rise in game prices has dragged up the average price of all games, toys and hobbies by 40.3 percent. That, in turn, contributed 0.27 percentage points to the overall CPI, taking the annual increase from 5.6 percent to 5.9 percent.
That figure helps the Reserve Bank’s Monetary Policy Committee decide whether to raise interest rates on mortgages. Te Kawa Mataaho, the Public Service Commission, compares civil servants’ wage rises against CPI increases. StudyLink adjusts student loan living costs in line with CPI. Student Allowances and supplementary assistance are indexed to CPI, minus the cigarettes and tobacco subgroup. Inland Revenue is required to adjust household childcare standard rates in line with CPI. NZ Super is indexed to the greater of CPI or average wages. So it matters.
When Newsroom revealed how much video games had contributed, it sparked questions about Stats NZ’s methodology. The concern was about the department’s reliance on a couple of Top 10 lists of computer games – and how they were blown out last year by the release of blockbuster games to accompany new PlayStation and Xbox consoles.
Michael Gordon, Westpac NZ’s acting chief economist, tells me the popularity approach is an imperfect measure. “It’s more appropriate for books, where there isn’t an underlying trend – the average quality might bounce around from one quarter to the next, but we’re not buying ever more elaborate books over time.”
But he says there’s an easy fix. “The only marker of ‘quality’ for video games is which system they run on,” he argues. “So you can survey the prices for the top 10 PS5 games, top 10 PS4 games, top 10 Xbox One games etc, and look at changes in the average price for each group.
“It’s a much easier task than for something like computers or new cars, where each model is a different bundle of features that are hard to put a value on individually.”
“While New Zealand’s inflation target is expressed in terms of CPI inflation (known as ‘headline inflation’), the Reserve Bank and other users will look at indicators of ‘underlying’ inflation. Those that have particularly large price changes are removed … This is particularly relevant to the video game market, which is a volatile measure.”
– Aaron Beck, Stats NZ
Policy guru Arek Wojasz has been buying and playing video games for decades, and worked in the games industry in business development for a company that sells computer games digitally.
“Video games are the largest global entertainment sector by revenue, so I think it’s a good thing that Stats are trying to track them as part of their inflation measurement,” he says. “We’re wanting to capture whether people are paying more for their games, how far is their dollar stretching, but this is not an easy thing to do accurately so I don’t envy the job of the good folks at Stats, and I don’t pretend to have the solution!”
Certainly, though, taking the most popular games in a quarter is not the answer. He points out that the standard retail price of a game is fairly set, but games are often deeply discounted within a year. “With the current model I think there’s a risk of wild swings based on whether there have been popular new releases released in one quarter versus another.”
He also points out that not all game types have the same pricing. Retail blockbuster-type games such as Grand Theft Auto, FIFA or Call of Duty cost about $120 new, but these are made by huge teams and cost tens of millions of dollars or more to create. Smaller production games or indie games generally operate on a totally different pricing model, closer to $10-$30 new – Mini Motorways from New Zealand studio Dinosaur Polo Club is a good example.
Then there are paid mobile games, which usually cost less than $10.
“It’s important to compare apples with apples,” he says. “If you’re looking at the 10 most popular games, and one quarter there’s a popular indie game that costs $20 and then the next it’s replaced by a big blockbuster that costs $120, it doesn’t mean that the cost of gaming has gone up – it just means that people have bought a different type of game for that month.”
Some of the most popular games use free-to-play or games-as-a-service business models, where players aren’t charged anything for the game itself but can choose to pay small amounts for extra features or content in-game, such as Fortnite.
Furthermore, the subscription model, as in World of Warcraft, is growing in popularity. A number of companies such as Microsoft are offering Netflix-like subscription models where a large library of games are available for a monthly fee. “Increasingly, gamers are using services like this instead of purchasing games separately.”
Wojasz argues that an ideal measure of the cost of gaming over time would capture the breadth of the sector and try to track changes within the different types of games and the different business models being used. It would also weight those according to their popularity and adjust the weighting over time, as consumer interests change and the industry evolves.
Stats NZ does not formally measure the precision of its CPI, but the US Bureau of Labor Statistics does provide caveats. “CPI item categories usually have larger standard errors [less precise] than the all items index,” it says. “For example, the 12-month standard error for the food index is 0.14 percent – twice as high as that for the all items index.”
Newsroom approached New Zealand’s top official statisticians and, graciously, they conceded there was room for improvement.
Aaron Beck, the senior manager of prices at Stats NZ, is himself fond of playing the odd game of FIFA 22 with his sons.
“In general, the CPI measures changes in the prices of goods and services of the same quality,” he tells us. “Like all statistical measures it is prone to inaccuracies – but over the long term provides a very robust headline measure of inflation.” A catch is that the more detailed the information sought, the less precise the estimate.
In the case of video games, he says measuring pure price change is complex. “Like many OECD countries, we define the ‘quality’ of video games in terms of their popularity, that is, in the Top 10 of games ‘sold’. We adopt a similar approach with items like books.”
So, for instance, a method that perfectly accounts for the quality of books would measure price changes for the same books over time – but this would mean retaining books in the Stats NZ CPI basket that are no longer purchased, and which will drop in price as they become less popular.
Video game inflation is one area where Stats NZ is trying to make its methods more robust.
“In terms of the impact on decision-makers of an ‘artificially’ volatile measure,” says Beck, “while New Zealand’s inflation target is expressed in terms of CPI inflation (known as ‘headline inflation’), the Reserve Bank and other users will look at indicators of ‘underlying’ inflation.
“Those that have particularly large price changes (either frequently or in a given quarter) are removed from these. This recognises that large price changes can often be due to temporary factors, which are sometimes unrelated to broad conditions in the economy.
“This is particularly relevant to the video game market – which is a volatile measure.”
So, what are the games that Stats NZ used to determine price rises, and so dramatically influenced the CPI for the past year? Stats NZ has disclosed them to Newsroom – and they are drawn from two overlapping Top 10 charts:
THE GAMES BEHIND YOUR RISING MORTGAGE RATES
- Age of Darkness: Final Stand
- Age of Empires IV
- Call of Duty: Vanguard – Standard Edition
- CarX Drift Racing Online
- Cricket 22
- Endzone – A World Apart
- Far Cry 6
- Farming Simulator 22
- FIFA 22 Xbox one
- Football Manager 22
- Forza; Horizon 5
- Grand Theft Auto V: Premium Edition
- Halo Infinite
- Jurassic World Evolutions 2
- Marvel’s Guardians of the Galaxy
- New World
- Red Dead Redemption 2
- Riders Republic