It's getting harder to be poor, and easier to be rich

Thursday, 24 October 2019

The highest-spending households faced the lowest quarterly inflation in September of 0.4 per cent, compared with 0.7 per cent for all households.

It's getting more and more expensive to live in New Zealand… or is it?

New data from Stats NZ shows that whether you're finding it harder to get by depends a lot on who you are.

It measures the cost of living through its household living cost price indexes, which compare how inflation affects 13 different groups.

This is different to the consumer price index (CPI), which looks at inflation as a whole.

* Rising fuel prices are not the only thing making life in New Zealand more expensive

Jess Berentson-Shaw: Poorer families are operating on tighter margins.

* Foreign buyers snap up homes in central Auckland**

In the September 2019 quarter, it was all good news for better-off New Zealanders but not so rosy for the rest.

The highest-spending households faced the lowest quarterly inflation of 0.4 per cent, compared with 0.7 per cent for all households.

A fall in mortgage interest payments in the September 2019 quarter helped offset rising local authority rates for the highest spenders.

'Mortgage interest rates dropped this quarter, influenced by a cut in the official cash rate,' Stats NZ consumer prices manager Sarah Johnson said.

'Highest-spending households benefited the most from the drop in interest rates. Mortgage interest payments make up about one dollar in every ten of this household group's spending.'

Spending on mortgage interest payments fell 2.7 per cent between June 2019 an September 2019 and was down 6.9 per cent compared to 2018.

'In the year to September 2019, inflation for the highest-spending households was 0.7 percent, about half the rate faced by all households,' Johnson said.

'Annual inflation for the highest-spending households has been consistently the lowest of any household group for the past three years.'

An increase in council rates hit pensioners hard in the quarter.

For all households, rates rose 5 per cent in the September quarter.

'More superannuitants tend to own their own homes, so this group is most affected by higher council rates than other groups who are more likely to rent,' Johnson said.

Inflation for pensioners was 1 per cent in the three months to September.

Rent increases affected beneficiaries. Their inflation was 0.6 per cent.

Infometrics chief forecaster Gareth Kiernan said there had been a clear trend since the data first started to be collected, that higher-income people had the smallest increases in their cost of living.

Over the 11 years to September 2019, the cost of living rose 1.6 per cent a year across all households.

But broken down, superannuitants had inflation of 2.1 per cent a year and beneficiaries 1.9 per cent.

The highest earners only had living costs rise 1.2 per cent a year.

Kiernan said lower mortgage costs would be the biggest benefit to people who bought their homes a while ago.

'If you bought your house 10 years ago and it's gone up 50 per cent to 100 per cent in value now while your mortgage rate has halved, obviously the lower mortgage rates have kept your cost of living down. However, if you entered the housing market later then you face a much higher debt level with lower mortgage rates, so the effect on your cost of living is not as obvious.'

He said the fact the data pointed to more pressure on low-income households lined up with anecdotal complaints that the CPI was not representative of all households.

'Of course, the indices don't say anything about incomes either – it's likely that minimum wage increases have pushed up lower incomes at a faster rate than average incomes, although that change doesn't help beneficiaries or superannuitants.

'NZ Super is indexed to the average wage and benefits are set to be indexed the same way as well from next year, which means that both are likely to trend upwards over time in real terms compared to the headline CPI. The real rate of increase compared to these cost-of-living indices for beneficiaries or superannuitants won't be as great, but in generally they should still outpace the cost of living.'

Researcher Jess Berentson-Shaw said the data was what she would expect.

Many low income families were operating on very small margins, she said, so any movement in prices had a big impact.

'For a lot of low-income families, they've moved quite far our of urban centres so they have to travel a long way so inflation pressures on things like petrol hit really hard as well. When you've got the ability to shift money around, even jut a bid of discretionary income, you can absorb inflationary costs a lot more.'

She said some of the services provided to low-income people, such as prepaid power, were also more expensive.

Economist Shamubeel Eaqub said superannuitants had a double blow because low interest rates often meant they were earning less from investments, too.

Eric Crampton, chief economist at The New Zealand Initiative, said, because different households bought different things, they experienced inflation differently.

'The household living cost price index has often also noted the effects of tobacco excise increases on beneficiary households and on Māori households; the March 2019 quarter update noted the substantial increase in beneficiaries' cost of living due to the tobacco excise increase that came into effect at the start of 2019.'