Why so many can't bear the cost of living, as inflation rises to 5.9pc

Friday, 28 January 2022

EDITORIAL: A kilo of tomatoes – $6.61. In December. Double what they cost a year earlier.

Lettuce, chicken breasts, butter, all up. Rents up 3.8 per cent over the year; fuel, power up. And wages – in real terms – down.

When the cost of living is the highest it’s been in more than 30 years, inflation swiftly moves from something we discuss in high school economics class to a harsh reality.

The Stats NZ data for the December quarter shows the consumer price index (CPI) – measured by changes in the price of a basket of 649 commonly bought goods and services – was up 5.9 per cent.

**READ MORE:

* Labour to come under pressure as prices rise

* Inflation: National blames 'dumb' Government spending for rising prices, Government blames globe

* Inflation expected to reach the highest level in 31 years, so what will cost more in 2022?

* Tony Alexander surveys households for tips on how to fight inflation

**

The cost of living hits everyone in the back pocket. But some are hit much harder than others.

Lower-income households spend more than 63 per cent of their incomes on food, transport, and housing. While higher-income households can more easily absorb price rises by cutting back on non-essentials, poorer households don’t have the luxury of choice.

And while wages have increased, they haven’t come close to keeping pace with inflation.

It’s hard to hear your money is worth less, when you have very little of it in the first place.

Now, as we prepare for Omicron, health experts are telling Kiwis to stock up.

If you’re living paycheque-to-paycheque, you’re probably not in a position to be buying extra pain relief, tissues, or pre-making and freezing meals.

Meanwhile, some of the communities most at risk from Covid-19 due to co-morbidities are the same ones who will be unable to pay the exorbitant prices for medical-grade masks, as demand outstrips supply.

The left-leaning world is quick to talk about how well New Zealand has done through the pandemic. There’s no doubt Kiwis have been kept safe, unemployment has stayed (very) low, and generally the economy has weathered the storm.

But that doesn’t mean everyone has fared well, and that there haven’t been unintended consequences. While some have channelled their pent-up demand into buying boats, baches and art, others have turned to foodbanks.

This week, political economics reporter Bernard Hickey published a “follow-the-money” piece on Covid’s winners and losers.

Relying on Stats NZ figures, the piece shows the massive wealth and cash transfer from the Government to home and business owners through its Covid-19 economic stimulus and relief packages.

“In summary, the Government’s Covid policies made the rich almost $1 trillion richer, while the poor were allowed to get $400m further in debt to the Government itself, and were forced to apply for more than twice as many food parcels in our largest city,” Hickey writes.

The findings aren’t surprising, but perhaps the extent of the problem is.

The difficulty is knowing what we should have done differently. If the Government hadn’t created the wage subsidy, jobs would have been lost and many would have ended up in a worse position.

The same question needs to be asked in terms of the increasingly high cost of living: so, what now?

We can raise wages and income support – something unions like PSA and welfare advocacy groups are calling for– but higher wages have the ability to push inflation higher.

We can raise interest rates further. This has begun, but some suggest the central bank should go harder and faster.

Those in charge of economic policies are stuck choosing between bad and worse options.

There is a limited array of levers the Government can pull that won’t exacerbate the wealth gap, thanks to the foundations of the society we currently occupy.

Unless, of course, someone is willing to take a risk on some more creative solutions.