Inflation: Rising prices for petrol, clothing, housing will dent Kiwis' wallets

Monday, 11 October 2021

Finance Minister Grant Robertson talks inflation after surprise figures showed the annual rate hit a nearly 10-year high.

New Zealanders can expect things to start getting a bit pricier.

The consumer price index, a measure of inflation, jumped to 3.3 per cent in the year to June, the biggest increase in nearly 10 years. It had run at an annual rate of 1.5 per cent for the preceding quarters.

Inflation refers to the rise in average prices throughout the economy.

But what exactly will take the biggest chunk out of Kiwis’ wallets over the coming months?

After the biggest inflation rise in nearly 10 years, New Zealanders can expect things to get a little more pricey.

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The price of petrol will continue to rise with inflation. (File photo)

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Petrol

“The most obvious thing is if you're just driving around and look at the petrol prices,' ANZ economist Finn Robinson said.

The cost of oil over the last couple of months, which had reached multi-year highs, had pushed the price of petrol up by 16 per cent in the year to June.

“And you're probably going to see prices increase over the next wee while.”

Global energy shortages and international gas prices also had an effect, he said.

According to PriceWatch, the average price for petrol across the country was $2.599 a litre, on Monday.

'It's going to hit people, especially lower income people for whom petrol and those kind of essentials are a big part of their consumption basket.'

Housing

Britain is currently looking like a canary in the coal mine when it comes to global inflation; Bank of England governor Andrew Bailey explains why it lifted its inflation forecasts in August.

Anything to do with housing and the booming property market is expected to put a dent in the bank accounts of many future home-buyers.

The cost of building has gone up, builders are hard to find and getting materials into the country has been a nightmare due to how 'clogged up' the supply chains are, Robinson said.

“The housing market has gone somewhat bonkers over the last year or so.”

The cost of house building was up 7 per cent year-on-year, he said. House sale prices were up more than 31 per cent in August compared to the year before, the Real Estate Institute said.

Imported goods

In general, anything that has been imported from overseas has had a big cost increase, he said, because Covid-19 had jammed up international supply chains.

The lack of available ships to transport goods to and from New Zealand had put pressure on an already-challenged system.

“We have seen things like even clothing and footwear up quite a bit.

“In the year to June they were up 5 per cent year-on-year as well, which is again stripping wage growth too.”

Used cars

The global ship shortage had also affected the secondhand car market.

A surge in the demand for cars, and manufacturers unable to build cars as quickly because of – you guessed it – supply issues, meant secondhand cars have become the best thing since sliced bread.

“That's really pushed up those prices,' Robinson said.

Employees

But one thing Robinson expects will become one of the most costly products in the country is workers.

”One of the things with inflation is it makes the cost of living stronger,' he said.

'And that means employee need a larger wage increase to make up the cost of living.”

He expected to see wage growth increase from an annual rate of about 1.6 per cent to about 3 per cent.

'That really reflects with the cost of everything going up, workers need to increase their wages in order to keep up.'

'It just takes a little bit more time to adjust because people need to go through their pay reviews,' he said.

But price rises could not go on forever, Robinson said.

The Reserve Bank increasing the official cash rate (OCR) from 0.25 per cent to 0.50 per cent would help to get inflation under control, he said.

“We're expecting over 2022 we should really start to see those numbers come back down to a bit more reasonable level.”

Retail New Zealand chief executive Greg Harford said things would get worse before they got better.

“The cost of production will be increasing, the cost of freight is increasing very substantially and of course the cost of employing people, the cost of power, all these things are going up.

“And all of that flows through into the price people pay,' he said.

“There's price pressure right across the board.”