Kiwis saving next to nothing, ahead of prediction inflation will climb above 7%

Thursday, 14 July 2022

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

New Zealanders spent nearly every dollar they earnt as inflation pressures mounted during the first three months of this year, Stats NZ has reported.

Households’ disposable income increased by 1.8% to $53.8 billion in the March quarter, Stats NZ, reported, but net savings amounted to just $19m or less than 0.04% of that total.

“During the pandemic, household saving was relatively high. Limited access to shops and services decreased household spending. At the same time, government subsidies supported household incomes,” senior manager Paul Pascoe said.

“Saving decreased in the March quarter as household spending surged.”

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Household net worth also fell by $42 billion, or 1.7%, during the quarter, as a result of falls in house prices and financial assets such as share prices, Stats NZ also reported.

People’s ability to save could come under pressure, as interest rates threaten to rise and economists predict another inflation shock.

ANZ has forecast that Stats NZ will report that annual inflation climbed to a 32-year high of 7.1% in the three months to the end of June, up from the 6.9% annual rate that it reported for the March quarter.

The forecast came after the United States’ Department of Labour reported overnight that annual inflation in the US had reached a worse-than-expected 40-year high of 9.1%.

Data from Stats NZ shows families spending almost every dollar they earn.

ANZ forecast that “imported” or so-called tradable inflation caused by price increase for imported goods and services, including petrol and diesel, would drive inflation higher, blaming global commodity price movements in the wake of Russia’s invasion of Ukraine.

It is forecasting annual non-tradable inflation in goods and services, which are produced locally, held steady during the last quarter, but at what it described as a “worryingly high” level of 6%.

“The challenge with the domestic inflation pulse is not so much the peak, but how long it may last,” it said in a research note

“With still strong inflation expectations and an ever tighter labour market, the answer, in all likelihood, is too long.”

The Reserve Bank forecast in May that June-quarter annual inflation would peak marginally higher at 7% before dropping to 6.2% in the September quarter.

But it warned when it published its review of monetary policy on Wednesday that there was “a near-term upside risk to consumer price inflation”, implying it was concerned inflation could rise higher than its forecasts.

Westpac and BNZ are also forecasting that the June-quarter number will come in at 7%.

“Price pressures are bubbling over in every corner of the economy”, Westpac senior economist Satish Ranchhod said.

But he forecast particularly large increases in the prices of food, fuel and housing related costs.

Stats NZ reported on Wednesday that grocery food prices were 7.6% higher last month than the previous June.

ASB said the US inflation data was “a pretty massive upside surprise on already-lofty market expectations, showing inflationary pressures are still very strong in the US”.

The 9.1% inflation rate there was fuelling speculation the US Federal Reserve would opt to increase its equivalent of the official cash rate (OCR) by a full percentage point at its next meeting on 26-27 July, the bank said.