Cost of living crisis: Inflation hits 7.3% - a 32 year high

NZ Herald ,
Publish Date
Mon, 18 Jul 2022, 10:51am
Photo / Getty Images
Photo / Getty Images

Cost of living crisis: Inflation hits 7.3% - a 32 year high

NZ Herald ,
Publish Date
Mon, 18 Jul 2022, 10:51am

The cost of living crisis is getting worse as inflation hits 7.3 per cent.

The new figure was revealed when Stats NZ released its quarterly Consumer Price Index for the three months to June this morning.

The 7.3 per cent increase is the highest since 1990.

Today's increase was largely driven by rising rents and construction costs. Prices for the construction of new dwellings increased by 18 per cent in the June 2022 quarter, compared to the same period last year.

"The 18 per cent annual increase in the June quarter follows an 18 per cent increase in March and a 16 per cent increase in December 2021," said StatsNZ general manager Jason Attewell said.

The next largest contributor to annual inflation was from the transport group, due to higher prices for petrol and diesel.

Petrol prices increased 32 per cent in the year to the June 2022 quarter, the largest annual increase since the June 1985 quarter. Diesel prices increased 74 per cent over the same period.

The tradeable inflation rate, which measures goods and services that are influenced by foreign markets, was 8.7 per cent in the year to the June 2022 quarter – the largest annual movement, either up or down, since the series began in June 2000.

Domestic, or non-tradable inflation, was 6.3 per cent in the year to the June 2022 quarter, the highest since the series began in June 2000.

The 7.3 per cent figure is higher than most economists were picking - expectations were for 7.1 per cent.

It follows an annual increase of 6.9 per cent in the March 2022 quarter, the previous largest annual movement since a 7.6 per cent increase in the June 1990 quarter that occurred shortly after the introduction of the Reserve Bank of New Zealand Act 1989.

The Reserve Bank forecasts for the year to June it will hit 7 per cent while economists range between 7.1 per cent and 7.3 per cent.

The New Zealand dollar was barely changed, rising a few pips to US61.61c. Two-year Government bond yields jumped by seven basis points to 3.6 per cent.

Earlier: Experts predicted rise of just over 7%

In rare good news for consumers the price of petrol has dropped overnight in Auckland.

The price of 91 has dipped below $3 a litre at several sites, with the Gaspy app showing a lowest price of $2.81 in Manukau.

The price of 95 octane fuel has also dropped below the $3 mark at selected service stations.

In May unleaded 91 got as high as $3.15 per litre in central Auckland.

A briefing note from ANZ, picking 7.1 per cent flagged surging fuel prices - largely driven by uncertainty and sanctions flowing from Russia's invasion of Ukraine - as being the key inflation driver over the past three months. ANZ forecasters said fuel prices had risen 3.1 per cent in the quarter.

"Uncertainty remains high, with global commodity prices being buffeted by geopolitical developments, and trading-partner inflation continuing to surge. Domestic inflation risks are firmly on the upside, given still-high inflation expectations and an extremely tight labour market," ANZ said.

Infometrics chief forecaster Gareth Kiernan, whose team is picking 7.3 per cent, hopes that this will represent the high watermark for inflation, but conditions are likely to be choppy for years.

"We think that will be the peak of it, but it looks very soggy over the next 18 months."

He said high levels of borrowing in the economy - by governments, businesses and households - limited potential growth, and without the expected recovery of the tourism sector this summer the economy would likely be heading into recession.

Outside this sector, Infometrics says, "the bulk of the economy will feel like it is going through a contraction anyway".

Kiwibank's chief economist Jarrod Kerr is similarly picking inflation to peak this quarter, but said even if were to reduce slightly towards the end of the year pain would persist.

"Transport costs are a big driver, and everyone's feeling the pinch from that: A rise in oil prices is like a tax on consumers. We've looked at our credit card spending on petrol, and the amount being bought has remained the same - it suggests everyone is spending a little bit less elsewhere.

"We're not picking a recession at this stage, but it'll be close."

Yesterday the Government announced it would extend cuts to fuel taxes, road user charges, and half-price public transport fares until the end of January next year.

The cuts, in place since March, take 25 cents a litre off the cost of petrol along with an equivalent reduction to road user charges (RUCs). The Government estimates the cut will take $11 off the price of filling a 40-litre tank, or $17 off a 60-litre tank and save public transport commuters $25 a week. Fuel is well over $3 a litre in most parts of the country.

Minister of Finance Grant Robertson said the extension would give households "some certainty over the coming months in the face of volatile prices at the pump".

He said "cost of living pressures are making it tough for New Zealand right now".