Winners and losers at a time of high inflation

Monday, 18 July 2022

Some Kiwis say they're thinking more carefully about the amount of food they're wasting amid high prices. (Video first published in June 2022)

With inflation at its highest rate since June 1990, families and businesses are feeling the pinch of price rises for food, fuel and rent.

Stats NZ reported on Monday inflation reached 7.3% in the year to June 30. This was higher than the 7% to 7.1% the Reserve Bank forecast.

Petrol prices leapt 32%, the cost of building a house rose 18% and grocery food prices were up 7.1%.

At a time when the price of everything had risen across the board, experts said clear winners and losers started to emerge.

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Losers:

Savers

Infometrics chief forecaster Gareth Kiernan said savers tended to do badly when inflation was high because money in the bank lost its value.

The Inflation figure means the buying power of your dollar has dropped 7.3%, as the cost of goods had risen. So at a time of high inflation money in the bank begins to be worth less over time.

Unfortunately there was not a lot you could do about it, Kiernan said.

“Many people would usually look to property or the sharemarket assets to hedge against inflation. But both of those are not doing well for a variety of reasons. It’s very difficult to find any options where you will be able to maintain your wealth,” Kiernan said.

Home owners:

Mint Asset Management head of sales and marketing, David Boyle said one of the worst hit groups by high inflation were mortgage holders.

High inflation means the Reserve Bank would probably continue to hike the Official Cash Rate to attempt to bring inflation down. This meant banks would also increase the interest rates of home loans.

Homeowners with a mortgage would have less disposable income, while the prices of goods rose.

“Inflation means the take home salary of many mortgage holders is going to be worth a lot less. When you combine that with the increase in prices it is going to mean some tough times for many Kiwi households,” Boyle said.

“Everyone with a mouth”

University of Auckland emeritus economics professor Tim Hazledine said “everyone with a mouth” would be hit hard by increased inflation.

A direct impact of inflation was felt in the increase of food prices, which would hit Kiwi households across the board.

“Lower income families will be the hardest hit as they often have little savings, and are already spending their entire income on the basics,” Hazledine said.

People without the opportunity to negotiate a pay increase would feel the pinch more than those who could ask for a raise, he said.

Supermarkets willl continue to make profits at a time of high inflation because people have to buy food no matter the price increase, Infometrics chief forecaster Gareth Kiernan says.

Winners:

Supermarkets and utilities companies

Supermarkets were a clear winner as people had to buy food no matter the price increase, said Kiernan.

“The supermarket sector can pass on costs to consumers. When you combine that with them having very little competition it makes them a clear winner in this environment,” he said.

For the same reason energy and utility companies would do fine because they would be able to pass on higher costs to consumers, without denting company profit, he said.

Investors with cash to burn

Boyle said investors with cash to put into the sharemarket would find themselves a winner in the long term.

“Of course, we could see the markets go down further, but if you compare the where the market is now to where it was at the start of the year, you would say anyone investing now is buying into a heavily discounted market,” he said.

Any investors would be entering a highly volatile environment, but in the long term they would reap benefits when markets eventually rebounded, he said.

Shipping companies

Global shipping companies would make the most of a squeeze in supply chains to reap large profits when inflation was high, said Hazeldine.

“Events in Ukraine and China have really strained supply and the amount of shipping containers available, so as demand goes up so have shipping costs across the entire import industry,” he said.

As New Zealand was highly dependent on importing goods, shipping companies were able to raise prices to make profits over and above inflation pressures, he said.

Hazledine said this contributed to rising inflation, and allowed shipping companies to profit from rising prices.