Potential impact of 5 cent rounding on household expenditure
Data from Statistics New Zealand's Retail Trade Survey indicates that New Zealanders spend around $4.5 billion per month in retail stores with around $900 million being spent in supermarkets. That represents an average monthly spend per household of about $3,000 across all stores with around $620 being spent in supermarkets and other food stores.
If marked prices were to change, if the 5 cent coin was removed, the effect on a particular household would obviously depend on the basket of items that the household buys and the number of items typically purchased. Those buying a large number of small value items might be affected more than those buying a smaller number of larger value items.
An example
Consider a household with a monthly spend in retail stores equal to the average set out above. Under plausible assumptions, such a household might purchase 175 items from the supermarket and other food stores each month (for an average value of $3.54). It might conduct 50 additional transactions across all other stores.
Now assume that half of all marked prices in supermarkets and other food stores rise by 5 cents and that 20 per cent of items in all other stores rise in price by 5 cents.
Under these assumptions, the household would need to spend an additional $4.40 per month to purchase the same items in the supermarket and other food stores. The household would need to spend an additional 50 cents per month to purchase the items in all other stores. In other words, its total expenditure would need to increase by around $4.90 per month (an overall increase of about 0.2 per cent).
In our view, this example is extreme. When the 1 and 2 cent coins were taken out of circulation back in 1990, prices didn't rise in the manner assumed in the example. Most retailers rounded down and up via the Swedish rounding system. Many stores such as supermarkets continued to price items to the nearest cent with only the total across all items being rounded to the nearest 5 cent (and then only for those customers paying by cash rather than EFTPOS, credit card or cheque).
We believe most retailers would behave in a similar fashion if the 5 cent coin was discontinued. Consequently, the effect on prices faced by most households would be negligible.
Analysis checked by Statistics New Zealand