Inflation shoots up to 5.9%

Thursday, 27 January 2022

The consumer price index (CPI) records changes in the price of hundreds of goods and services. (First published January 20, 2022)

The inflation rate has jumped to 5.9 per cent, Stats NZ has reported.

Consumer prices during the three months to the end of December put the annual inflation figure at its highest level since June 1990.

That was the same year that Jim Bolger became prime minister and Auckland hosted the Commonwealth Games.

READ MORE about whether we can trust our inflation figures and whether we worry too much about inflation.

The annual inflation rate was up from 4.9 per cent during the September quarter and is expected to keep pressure on the Reserve Bank to continue ratcheting-up interest rates.

The central bank will next reset the official cash rate on February 23.

Rising petrol prices were one driver behind the increase in inflation, but the Reserve Bank will be more interested in assessing the local factors.

ANZ’s economists had said it would be no surprise if inflation landed anywhere between 5.5 per cent and 6.5 per cent, while the Reserve Bank had forecast a 5.7 per cent lift.

ASB economist Mark Smith forecast that inflation would rise above 6 per cent in the current quarter, saying it no longer looked “transitory”.

“A broadening front of rising inflation is emerging that will be difficult to slow, and we expect annual CPI inflation to remain above 3 per cent well into 2023.”

The Reserve Bank clearly had “more work to do”, raising the chances of the official cash rate rising faster and to a higher level than the central bank had previously signalled, he said.

ANZ agreed that inflation had “some serious momentum”.

Stats NZ manager Aaron Beck said New Zealand was not alone, “with many other OECD countries experiencing higher inflation than in recent decades”.

Inflation is on the rise globally due to fiscal and monetary policies put in place to cushion the economic impacts of Covid, and supply chain problems restricting the production and distribution of many goods.

The annual inflation rate in the United States jumped to 7 per cent in the December quarter, and rose more mildly in Australia to 3.5 per cent.

Prices were up across almost all the categories of goods and services that Stats NZ monitors.

New Zealand’s higher inflation rate was partly explained by ‘imported’ inflation, with petrol prices increasing 30 per cent in the year to the December quarter.

But Stats NZ said “non-tradable inflation” – the increase in prices of goods and services whose prices are largely determined locally, rather by international markets – also increased to 5.3 per cent, from an annual rate of 4.8 per cent in the September quarter.

Rents rose 3.8 per cent over the year on average, and the price of building new houses leapt 16 per cent as shortages of building materials and construction workers pushed up costs.

“The inflation rate for construction prices has been much higher in 2021 than we have typically seen in previous years,” Stats NZ reported.

It reported food prices fell 0.7 per cent over the quarter, but were up 4.1 per cent over the year.

National Party finance spokesman Simon Bridges said Finance Minister Grant Robertson needed to “rein in his spending to avoid adding more fuel to the inflationary fire”.

“With wage growth of only 2.4 per cent, well under half of inflation’s growth, New Zealanders are going backward. At the same time, we’ve got rising interest rates and record amounts of government spending,” he said.

Capital Economics economist Ben Udy said the 1.4 per cent quarterly increase in the consumer price index in the three months to the end of December was slightly above consensus forecasts of a 1.3 per cent rise.

Relatively subdued wage growth in the context of higher inflation shows there is no sign of a wage-price spiral, the Council of Trade Unions says.

“Looking ahead we suspect inflation is approaching its peak,” he said.

“Inflation is now consistent with the high level of inflation signalled in business surveys in recent months. And as capacity constraints ease in 2022, so too should price pressures.”

Council of Trade Unions chief economist Craig Renney said the more modest 2.4 per cent rise in labour costs over the year showed wage rises were not driving inflation.

“Whilst some economists may be worrying about a wage-price spiral, we have yet to see increased costs feed their way through to increased wages,” he said.

“What is needed now is to make sure that we are protecting those with the least ability to incur higher costs.”

Businesses could help by making sure that those with the lowest incomes received wage increases that matched inflation and the Government could help by making sure that the minimum wage and welfare payments were set at a level “that doesn’t see workers fall further behind”, he said.

Corrections: an earlier version of this story reported food prices fell 0.7 per cent over the year. They were down 0.7 per cent over the quarter but up 4.1 per cent over the year. The Reserve Bank will next reset the official cash rate on February 24, rather than February 23. Amended at 5.09pm and 5.58pm, January 27, 2022.