Inflation in New Zealand is 7.3% higher than expected, the highest level in three decades, with households experiencing sharp increases in the cost of food, petrol and housing.
Stats NZ has released its quarterly consumer price index for the three months leading up to June. Inflation rose from 6.9% in March to 7.3%, with a 1.3% increase in food and a 2.3% increase in transportation, housing and household utilities.
Major banks, including ANZ and the Reserve Bank, had forecast inflation to hit 7% or 7.1%. Infometrics predicts the rate at 7.3%, the highest since June 1990.
Housing and household utilities were the largest contributors to both quarterly and annual inflation, Stats NZ reported, the main drivers being an 18% increase in construction costs in the June 2022 quarter compared to the same period last year, and rent increases.
“Supply chain issues, labor costs and increased demand have pushed up the cost of building a new home,” said Jason Attewell, general manager of Stat’s NZ.
The second largest contributor was transport, with an annual increase of 32% in petrol prices and a whopping 74% in diesel prices.
The increase in transport was partly offset by falling prices for road passenger transport, international air fares, rail passenger transport, used cars and other private transport services, including road user charges, according to Stats NZ.
“From April 1, half-price bus and train fares came into effect and from April 21, fares for road users were reduced. These price declines were reflected this quarter,” Attewell said.
Those measures could continue to help offset some transportation costs after the government announced on Sunday it would extend half-price tariffs and cuts in fuel taxes and road user rights until 2023.
The cuts, originally intended to last three months, were announced in March to help combat pressures on the cost of living as global oil prices rose.
Food prices continue to rise, up 6.5% year-on-year and up 1.3% from the previous quarter.
Non-tradable inflation, which measures goods and services unaffected by foreign competition and is considered a measure of domestic inflation, reached an all-time high of 6.3%.
The domestic figure was worrisome, said Brad Olsen, an economist at Infometrics.
“The fact that you have that … domestically-based inflation rate that’s now at its fastest pace since records began in 2000 underscores just how busy the economy is,” Olsen said, citing the pressure to build housing and a lack of rental resources added, “New Zealand’s economy is trying to do too much, with too few resources”.
Tradable inflation, which measures goods and services affected by foreign markets, also hit an all-time high of 8.7%.
Economists expected higher food, fuel and housing costs, but what was unexpected was the broad rise in prices for other items.
“[That] culminated in 66% of all items Stats NZ monitors have gone up in price — the largest number of items to have gone up in price since at least 2018,” said Olsen.
The broad consensus among economists is that New Zealand will now approach, if not reach, peak inflation, but the price decline will be slow.
“Realistically, I think it’s going to be persistent and stubborn at that higher level for much longer than people would want or expect,” Olsen said.
The Reserve Bank is under pressure to cool the economy, including further raising official cash rates at its next meeting, Olsen said.
“The strength of the current inflation rate gives us a moment to reflect on whether a 75 basis point increase – as the US and Canada have recently done – is at stake here in New Zealand.”