Cost of living soars: Biggest inflation surge since 1987

Author
Liam Dann, NZ Herald,
Publish Date
Mon, 18 Oct 2021, 11:50AM
The cost of living in New Zealand continues to rise. (Photo / Getty Images)
The cost of living in New Zealand continues to rise. (Photo / Getty Images)

Cost of living soars: Biggest inflation surge since 1987

Author
Liam Dann, NZ Herald,
Publish Date
Mon, 18 Oct 2021, 11:50AM

The Consumer Price Index has surged 2.2 per cent in the September 2021 quarter, much more than economists had expected.

Excluding quarters impacted by increases to GST rates, the September quarter movement was the highest since the June 1987 quarter, which saw a 3.3 per cent rise, StatsNZ said.

Annual inflation was 4.9 per cent in the September 2021 quarter when compared with the September 2020 quarter.

This was the biggest annual movement since inflation reached 5.3 per cent between the (GST effected) June 2010 and June 2011 quarters.

The September spike was up from a 1.3 per cent increase in the June quarter (3.3 per cent year on year).

Economists had been expecting the Consumer Price Index to land between 1.5 and 1.8 per cent for the September quarter for an annual figure of around 4.4 per cent.

The main drivers were housing-related costs, such as the construction of new houses and local authority rates, StatsNZ said

Prices for construction of new houses were up 4.5 per cent for the quarter, and 12 per cent for the year.

"Both supply-chain challenges and high demand are pushing up the cost of building houses," consumer prices manager Aaron Beck said.

"Construction firms reported that it is hard to get many materials needed to build a house, and that there are higher labour and administration costs."

Wages in the construction industry, as measured by the labour cost index previously increased 3.1 per cent in the year to the June 2021 quarter (the most recent quarter available).

This was due to high demand for labour in the construction industry in the last year.

But quarterly price rises were widespread, with 10 of the 11 main groups in the CPI basket (such as food and transport) increasing in the September 2021 quarter compared with the June 2021 quarter.

Vegetable prices rose 19 per cent, making it the second largest upwards contributor to inflation. This was influenced by higher prices for tomatoes, lettuce, and broccoli.

Transport prices rose 4.2 per cent in the September 2021 quarter, due to higher prices for petrol, as well as international and domestic airfares.

Petrol prices rose 6.5 per cent in the quarter and 22 per cent for the year. The annual increase is the highest since the September 2007 quarter to 2008 quarter.

While the Reserve Bank is expected to continue hiking interest rates, economists believe it will remain cautious while New Zealand adjusts to living with Covid-19.

Most expect at least three further hikes in the coming months.

"While we think the recent surge in inflation should start to abate in the year ahead, the strength will surely be worrying the RBNZ, supporting the case for further rate hikes," said Ben Udy of Sydney based Capital Economics.

"We had already expected the RBNZ to continue hiking rates despite the Auckland lockdown. But the strength in consumer prices in Q3 will surely nudge the Bank towards an even more aggressive hiking cycle."

Globally inflation has been on the rise riven by pandemic related production and shipping delays.

Most economists expect it to peak as restrictions ease globally over the coming months.

Although it is likely to take longer to fall back into the Reserve Bank target range of 1-3 per cent.