ASB economists expect 'a considerably more modest inflation impact in NZ' than during the pandemic spike in shipping costs, but say the latest rise 'will further crimp NZ and global household demand'

Made a list of what new durable goods we need for the rest of 2024. 

Here it is:

Let's say I rely on $1000 of stuff per week. $300 of that stuff is bought from other countries by wholesalers. Wholesalers have costs and a margin to make for their owners, so they sell their stuff to the retailers that I buy from - who add another mark-up to cover their costs and margin. Let's say that operating costs and margins for those wholesalers and retailers are broadly stable (which they are).

So, when wholesalers pay an extra 10% for the stuff they buy from other countries, what happens? Basically, I end up paying $330 for the stuff that used to cost me $300. So, my total costs go up by $30 to $1030 per week - a 3% increase on my total shopping basket. This is basically what happened in 2021/22, although import costs, which make-up one-third of our consumption, went up 27%!

So, what do I do hen prices rise? Maybe I compromise on some of my domestic spending - meals out etc, and spend a bit less on that more expensive imported stuff. Does the price of that imported stuff go down because demand falls 10%? Nope, the wholesaler just orders less of it.

Now, step back and think about what happens as the impact of those higher priced imports flow through the economy... companies pay more for their imported input goods, and charge more for their output goods. So, the price of domestically produced goods increases too. Workers then push for higher wages so that they can afford to live and eat - this moderately increases input costs and therefore prices too. Price rises basically propogate through the economy and will - without intervention - find a new absolute and relative level. Less will be spent on the discretionary things that have gone up in price or become unaffordable, more will be spent on non-discretionary things. Businesses will adjust, supply chains too etc etc.... and on we go. Until import costs com down again of course and then we will see another period of adjustment. Think about when we introduced / increased GST - look what happened afterwards.   

Now add in to this simple self-levelling world the mighty RBNZ. They look at prices going up and decide that the answer is to increase business debt servicing costs and increase my $300 per week mortgage costs to $450 per week. Now I can buy even less stuff. Eventually, after 12 - 18 months of people getting poorer and poorer, enough people are poor enough to forego enough consumption that businesses without market power go bust, and thousands of jobs are lost. Now, finally, staff can be hired very cheaply, and prices rises moderate! Well, no, staff make-up around 10% of the costs of our huge wholesale and retail industry, and wages are pegged around the minimum wage. Moderating wage demands make sod all difference to the price of most of what we buy. While RBNZ have been reeking havoc, prices have been doing pretty much what they would have done without any intervention.

The article is a bit misleading. Inbound rates to New Zealand have certainly not tripled in the last few months.

The blue line on the graph which is for AU and NZ combined ex China does show an uptick. Rates to Australia are higher than to NZ at the moment due to their demand for imported goods being above our anemic levels. From Jan to Jul  the rate for a 40' container from main China ports to main NZ ports has increased 45%. The increase is mainly driven by the stronger demand for imported goods in Europe, Americas and Africa. Shipping rates from China to those countries have increased rapidly. But NZ importers are still only paying around a quarter of what they were paying during the covid peak. New Zealand just has to pay more now to justify the shipping lines continuing to allocate vessels and equipment to our trade lanes. If week demand continues they will reduce the vessel sizes on our trade. But this will have a flow on effect for exporters trying to get containers and space for their shipments out from NZ on those same vessels.

In short, 70% of New Zealanders have shut their wallets. The banks or the landlord get paid first and we try and live on the rest. You cant get blood from a stone.