Coronavirus: Falling prices for airfares and petrol drive down transport costs, latest CPI shows

Monday, 20 April 2020

Former Air New Zealand executive Cam Wallace talks back in April about the importance of cargo revenue for the airline during the pandemic.

Falling airfares and petrol prices have driven down transport costs so far this year, Statistics New Zealand consumer price index shows.

The consumer price index (CPI), which measures inflation, rose 0.8 per cent in the first quarter of the year, driven by higher prices for cigarettes, and residential rents.

Annual inflation was 2.5 per cent, the highest since the September 2011 quarter when it was 4.6 per cent. This was driven by domestic inflation, which remains above 3 per cent.

Westpac senior economist Michael Gordon said the CPI's 0.8 per cent increase was double the market's expectations.

* Unemployment rises to 4.2%, but wage rises pick-up

International airfares fell 11 per cent in the March quarter, while domestic airfares were down 1.1 per cent.

* Soaring domestic airfares and higher rents help hold up inflation at 1.5%**

The larger than expected increase in cigarette prices was a surprise, a 1.2 per cent rise in rent as well as and higher than expected airfares and accommodation. Gordon said.

'We expect annual inflation to drop back below 2 per cent in the June quarter, largely due to a sharp fall in fuel prices as world oil prices have plunged,' he said.

The CPI rose 0.8 per cent in the first quarter of the year due to higher prices for cigarettes, and residential rental rents.

'Rents, which make up almost 10 per cent of the CPI, will also be a drag on inflation after the Government imposed a freeze on rent increases.'

International airfares fell 11 per cent in the March quarter, reducing overall transport costs by 1.7 per cent. Domestic airfares were down 1.1 per cent.

Stats NZ consumer prices senior manager Paul Pascoe said while there were reports of higher prices for flights associated with the coronavirus pandemic towards the end of March, price falls throughout the rest of the quarter and the timing of collecting data have still resulted in a sizeable fall.

He said typically after a spike in December, airfares fell in the first three months of the year.

Last week the International Air Transport Association (Iata) said airlines would take a 55 per cent hit to their passenger revenues this year due to the Covid-19 coronavirus crisis.

Revenues would be US$314 billion (NZ$514b) below last year, the association said, a significantly worse forecast than Iata's estimate last month of US$252b in lost revenue, based on severe travel restrictions lasting three months.

Petrol prices fell in both February and March after rising slightly in January, Pascoe said.

Petrol prices fell 2.3 per cent in the quarter after a 1.6 per cent rise in the December quarter. The average price of 91 octane petrol was $2.09 a litre last quarter, down from $2.14 at the end of last year.

'By the last week of March, the petrol pump price was about 9 per cent lower than the March quarter weighted average price,' Pascoe said

The CPI is a quarterly measure and not all data is collected weekly, which meant it may not fully capture Covid-19-related price movements Pascoe said.

The annual tobacco tax increase on January 1 lifted cigarette and tobacco prices 11 per cent.

The tax increase is the last of four announced in the 2016 Budget.

The average price of a packet of 25 cigarettes was $41.89 in March, up from $37.51 in December, Pascoe said.

'One cigarette now costs about $1.70 compared with $1.15 at the start of 2016.

Ten years ago cigarettes cost about 54 cents each.

British American Tobacco was criticised by smokers for raising prices in New Zealand on the first day of the coronavirus lockdown.

The company owns the Dunhill, Benson & Hedges, Rothmans, Holiday and Pall Mall brands

A spokeswoman said the price hikes were a response to the tax increase and would have normally been implemented at the start of the year but, were not due to 'market dynamics'.