Is now the time to buy? Prices drop but 'inflation around the corner'

Saturday, 29 May 2021

The price of many consumer goods has dipped to the lowest point since the Covid-19 lockdown, according to price comparison website PriceSpy.

But the cheap prices on consumer goods might not last as inflation is tipped to creep up in the second half of this year.

According to PriceSpy’s price index, the indexed price across its most-popular products and shopping categories has been steadily falling since the start of the year.

But independent economist Tony Alexander warned that the basket of goods which PriceSpy tracks was very different to the goods and services in the Consumer Price Index of inflation in the wider economy.

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**

Price indexes measure the change in price for a fixed basket of goods between two time periods, and PriceSpy has 139,337 indexed products with 1,730,000 indexed prices.

Overall, the price index had dropped to -1.8 per cent.

The indexed price across the same time period last year was up 4.7 per cent, PriceSpy’s data showed, with a big leap when New Zealand was placed into its first national lockdown.

Alexander said: “Most of the items on PriceSpy could be capable of going in the CPI basket of goods, but there are untold items in the CPI that are not on PriceSpy.”

These included rents, local authority rates, and insurance.

That meant the future tracks of CPI, and the PriceSpy Index, could be different, with the prices of consumer goods driven by their own unique drivers, such as Covid-disrupted global supply chains.

PriceSpy New Zealand country manager Liisa Matinvesi-Bassett​ said the price of goods was generally dropping after reaching highs in the aftermath of the Covid-19 pandemic.

She said 70 per cent of the top ten most-popular chest freezers were cheaper to buy now compared to the start of the year, a trend also seen with webcams, headphones and TVs.

The cheapest listed price on a Haier chest freezer was $439, down from $501 at the beginning of the year.

A Logitech HD Webcam cost $80, down from $108 at the beginning of the year and the cheapest advertised price for a Sony Bravia TV was $3995, down from $4798 in January.

But the lower prices weren’t expected to last, Matinves-Bassett said.

“With further price hikes reportedly taking place later this year and the continued fall out of Covid-19 affecting global manufacturing, distribution channels and supply chains, it’s difficult to say how long the current prices will last, as there are so many variables at play,” she said.

On May 26, Reserve Bank Governor Adrian Orr signalled a near-term increase in inflation.

In its Monetary Policy Statement, the Reserve Bank said inflation could reach 2.6 per cent in the second half of this year.

The Bank then expected inflation to weaken to 1.5 per cent by mid-2022 before gradually climbing back to 2 per cent.

In April, Retail NZ chief executive said multiple inflationary pressures were building as the cost of procurement and freight increase and the cost of employing staff goes up.

“Around two-thirds of Retail NZ members expect to see prices increase over the next quarter,” Harford said.

“Retailers operate on very thin margins, the average net margin across the sector is just 3.9 per cent,so when you have big cost increases, such as we have seen with freight and wage inflation, retailers need to be able to pass these on.”

Kiwibank chief economist Jarrod Kerr said it remained a live question on what portion of businesses’ increased costs from global supply chain disruptions could be passed on to consumers.

“Our clients are all saying they want to pass on higher costs , but wanting to do something, and being able to do it, are often very different things,” he said.