By Alex Tarrant
General prices in New Zealand rose 0.8% in the March quarter, due mainly to higher prices for petrol, cigarettes and food than in the December quarter, Statistics New Zealand said today.
The Consumers Price Index (CPI) for the March 2011 quarter also showed general prices were up 4.5% from the same quarter a year ago, Stats NZ said. See our interactive chart below.
The rise in the CPI was below median economist expectations of a 1% increase for the quarter and a 4.7% annual increase. They follow a 2.3% increase in the December quarter due to the rise in GST on October 1 last year from 12.5% to 15%, and an annual increase in December of 4%.
The New Zealand dollar dropped immediately as low as 79.3 USc from 79.85 USc just before the release of the data, but has bounced somewhat to be 79.6 USc by late morning.
The annual increase of 4.5% is the highest for any quarter since September 2008 when petrol prices peaked, although the latest rise included the effects of the GST hike, which raised general prices by 2.22%, Stats NZ said.
Central and local government fees and charges rose 6.8% in the March quarter from a year ago, helping to drive non-tradeable inflation to a record 5.2%.
The Reserve Bank of New Zealand (RBNZ), which is tasked with managing medium-term inflation expectations between 1-3%, had forecast a 4.4% increase in the annual CPI for March. With the headline figure of 4.5% coming in similar to the RBNZ’s expectations, it should do little to change the central bank’s outlook for when it may have to increase the Official Cash Rate (OCR).
Indications are it will look to hold the OCR at its record low of 2.5% for most of 2011, with some economists picking a 25 basis point increase to 2.75% to be delivered on December 8, as inflationary pressures from the rebuilding of Christchurch start to flow through to the wider economy.
The Reserve Bank has previously said it would look through the short-term implications of the GST hike last year.
Three staples? Petrol, ciggies and food
The main contribution to the 0.8% quarterly rise in the CPI came from transport costs, up 2.5% due to higher prices for petrol and diesel, Government Statistician Geoff Bascand said in a media release. Petrol prices rose 9.7% over the quarter.
Cigarette and tobacco prices rose 9.4% over the quarter from December, influenced by a 11.64% rise in excise duty on January 1 this year.
“If prices for petrol, diesel, cigarettes and tobacco had remained unchanged from the December 2010 quarter, he CPI would have risen by 0.1%,” Bascand said.
Food prices rose 1.2%, due to higher prices for grocery food and meat, poultry and fish, Bascand said.
Meanwhile the most significant falls in prices over the quarter came from the recreation and culture subgroup, down 1.7%, and the household contents and services group, down 1.9%, Bascand said.
Add in electricity prices
The annual rise in the CPI of 4.5% included the 2.22% increase in GST last year, Stats NZ said.
Transport costs rose 8.2% over the year, including a 17.1% rise in petrol prices.
Cigarette and tobacco prices rose 26.1%, while electricity prices rose 6%.
“If prices for petrol, diesel, cigarettes and tobacco had remained unchanged from the March 2010 quarter, the CPI would have risen by 3.0% annually,” Bascand said.
Here is the reaction from Labour leader Phil Goff. Also see video above.
Figures showing there has been an annual increase in inflation of 4.5 per cent and the fact it is predicted by some economists to reach the highest level in two decades later this year is proof of this Government’s economic mismanagement, says Labour Leader Phil Goff.
“John Key claims it’s everyone else’s fault that inflation is at a record high. But he was not elected to say there’s nothing much he can do.
“What he has done is fail to lead this country out of the recession. He gave tax cuts to top earners at a time when we could not afford it. His decision to break his promise not to increase GST couldn’t have come at a worse possible time.
“Maybe paying more for essential items isn’t a worry for John Key. But it certainly is for other New Zealanders.
“Three years ago, he was telling Helen Clark as Prime Minister that she should do something about petrol and dairy prices. Well, step up John Key and tell New Zealanders what you are doing now?
“New Zealand now has the worst of all worlds – an economy that has stalled and is probably back in recession. Add to that very high inflation and high unemployment and we’re in real trouble.
“Middle and low income families are suffering as prices of everyday items like milk, cheese, fruit and vegetables, petrol and power soar ahead of wages. That’s not a ‘lifestyle choice’ as John Key claims. It’s a reality for many New Zealanders who cannot afford basic necessities – forget about luxuries.
“Top earners are doing okay though under this Government. They’ve never been better off. But John Key’s generosity to them has not been matched when it comes to middle and low income earners. They’re stretched to the limit.
“Labour will try to ease some of that pressure by eliminating GST on fruit and vegetables. We will also give some financial relief through a tax-free zone and are committed to growing the economy to create better jobs with higher incomes,” said Phil Goff.
Economist reaction
ASB economist Christina Leung said today's figures showed there were tentative signs of a lift in underlying inflation pressures in the economy:
CPI was much weaker than our, and market expectations, increasing only 0.8% in the March quarter. The surprise was in much weaker than expected tradable inflation, which increased only 0.5% in the quarter. Excluding fuel prices, tradable inflation would have fallen 0.9% - even lower than what the high level of the NZ dollar would have suggested. This softer than expected result reflected a substantial amount of discounting in major household items in the face of weak demand. This was particularly evident in lower prices for furniture, audiovisual equipment and second-hand cars over Q1.
Non-tradable inflation increased 1.1%, with the increase in the tobacco excise tax making up 0.4% of this increase. Beyond the increase in tobacco prices, we estimate non-tradable inflation would have only increased 0.7%, suggesting tentative signs of a lift in underlying inflation pressures in the NZ economy.
Nonetheless, the RBNZ will be very comfortable with today’s result, as it is broadly in line with its March MPS forecast of a 0.7% increase for Q1. While weak demand is keeping inflation contained for now, we expect inflation pressures to re-emerge next year as the recovery in the NZ economy picks up pace.
HSBC economist Paul Bloxham also pointed toward signs of increasing inflation pressures showing through in the non-tradable figures:
Kiwi inflation was 4.5% over the year to Q1, a touch weaker than the market expected (4.6%) but a little stronger than RBNZ forecast (4.4%). Headline CPI rose by 0.8% in Q1 (3.2% annualised), which is still above the RBNZ's comfort zone. While some of this will reflect the lagged effect of the GST increase last October, the rise in non-tradables inflation was strong (4.5% annualised). This may be of some concern to the RBNZ given non-tradables inflation is one of the best guides to domestic price pressures. Still expect rates on hold until Q4.
ANZ economists said there were clear upside risks for inflation pressures:
Today’s CPI outturn was in line with the RBNZ’s March MPS pick of a 0.7 percent quarterly increase, but slightly weaker than market expectations. Annual CPI inflation rose to 4.5 percent, the highest rate since September 2008.
Higher petrol prices contributed 0.5 percentage points, and higher tobacco prices a further 0.2 percentage points.
Core measures were a mixed bag. The weighted median registered a 0.3 percent quarterly increase and service sector inflation rose 0.1 percent. However, the various trimmed means returned quarterly inflation rates in the 0.7 to 0.9 percent range. The soft retail environment is continuing to prevent a broadening of pricing pressure at the retail level, with Statistics NZ reporting that prices for 254 of the approximately 700 individual items collected actually fell in the March quarter.
Our estimate of underlying annual CPI inflation, which excludes the direct impact of GST and “one-off” government charges, rose to 1.8 percent from 1.6 percent last quarter. This remains in the middle of the 1 to 3 percent RBNZ target range but looks to have turned up.
Despite the headline inflation rate being in line with the March MPS projections, future inflation does not look as benign, with clear upside risks. As the year progresses we believe it will become obvious that a 2.5 percent OCR is not sustainable given the inflation outlook.
We continue to look for a 25 basis point hike in the December MPS, with a gradual path of policy tightening thereafter.
However HSBC economist Helan Kevans said underlying inflation remained benign:
Indeed, underlying inflation remains benign. The trimmed mean measure, which excludes the most extreme 30% of pricemoves, increased just 0.5%q/q in 1Q, providing further evidence that firms remain unable to pass on higher costs owing to weak domestic demand.
There remains, therefore, little urgency for RBNZ Governor Bollard to tighten policy, having only just cut the OCR to a record low in March to stimulate the economy in the aftermath of the recent natural disasters in Christchurch and surrounding areas. Indeed, there is little impulse to remove the current stimulus in place, particularly given the lift from higher energy prices likely will be temporary and considering that inflation expectations have remained anchored despite the rise in the consumption tax. Inflation expectations were steady over the two-year horizon at 2.6%oya in 1Q, while those over one year dropped considerably, falling from 3.4% to 2.9%. Both measures now sit within the RBNZ’s target range.
The details of the CPI report showed that the tradable and non-tradable measures pulled back sharply in 1Q having been lifted in 4Q by the GST increase. Tradables inflation eased back from 2.5%q/q to just 0.5%, but this measure had more to give back given it was affected to a greater extent by the consumption tax increase. Indeed, all the items not subject to GST are in the non-tradable basket. Those items include: housing rentals, school donations, life insurance, and credit services. That all said, if petrol and diesel prices had remained unchanged in 1Q, the tradables component would have fallen0.6%q/q. The non-tradable measure fell back from 2.2% to 1.1% in 1Q, but remained buoyed by higher cigarette and tobacco prices.
(Updated with PM Key's comments on CPI, high NZ$ and low interest rates, economist reaction, video of Goff, Goff reaction statement, interactive chart; drop in NZ dollar; 6.8% rise in government fees and charges)
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51 Comments
Yes that's a far more accurate way of determining the real rate of inflation Bernard...forget the official claptrap...just point to the rises.
So who in their right mind can see families making a move to have new homes built in this situation....rising council rates and fees and charges...higher materials costs plus gst...higher labour costs plus gst...potential for mortgage rates to double at some stage in the near future...employment security approaching zero.....
Wolly...mortgage rates to double in the near future....uh no....
Pointing to just the rises is plain silly, what you awant to look at is the annual cost of living, covering everything you purchase. Just saying oh look tomatoes are 50% up ignores that say apples are 50% down....what you need is the NET effect on your pocket. From that the OCR is set....if the NET effect in close to zero raising the OCR would be a mistake.
regards
I can highly recommend this piece linked by someone else last week.
http://www.ritholtz.com/blog/2011/04/apropos-of-everything/
It explains just exactly what inflation is, does, and the long term consequences.
"With each passing period suspending debt reconciliation, the consequences grow greater".
Goff's reply in the story above, and Cunliffe has a different one here:
Today’s consumers price index (CPI) figures showing a 4.5 percent annual inflation figure reinforce how increasingly tough it’s becoming for struggling Kiwi families to afford the basics, says Labour’s Finance spokesperson David Cunliffe.
“Prices are rising in areas like food and transport where Kiwis can’t afford to cut back any more,” David Cunliffe said.
“People can’t do without bread, cereals, milk, cheese eggs, meat, poultry and fish.
“Today’s inflation realities, coupled with Finance Minister Bill English’s apparent celebration last week of a low-wage economy, will prove to be a toxic combination for Kiwi families,” David Cunliffe said.
“Kiwi families all around the country are having to make the devil’s choice between putting food on the table, or taking the children to the doctor, or putting gas in the car.
“National’s increase in GST and the blind eye it is turning to increases in key foods like dairy show how increasingly out of touch it is with real life for most Kiwis.
“People have been hanging on by their fingernails waiting for the brighter future John Key promised in 2008, but it hasn’t happened,” David Cunliffe said.
“Prices are rising faster than ever. Wages aren’t.
“There is no credible plan for creating jobs and lifting incomes.
“Relying on commodity prices, cutting budgets and racking up debt is no substitute for a real economic game plan that provides a clear pathway for our national and regional economies.”
“Prices are rising faster than ever. Wages aren’t."
its known as the end of our lifestyle.....when you look back decades ago and indeed in the developing world today a substantial part of someones wages went on food and the basics....its simple we have to revert....
When I go to help teach in a decile1 school I see parents and ppl out on the street in that area driving GMs, ford falcons, SUVs and other gas guzzling cars they cant afford to run.....
cigarettes part of CPI? give me a break.
regards
David Cunniliffe:
“People can’t do without bread, cereals, milk, cheese eggs, meat, poultry and fish."
- Yes, they can. Fish is not a staple. Anyway, what would your Green mates say if we were to increase the food supply by increasing farming, fishing quotas, GE, etc..?
“National’s increase in GST and the blind eye it is turning to increases in key foods like dairy show how increasingly out of touch it is with real life for most Kiwis."
- Yes, but would Labour remove the GST increase?
“Relying on commodity prices, cutting budgets and racking up debt is no substitute for a real economic game plan that provides a clear pathway for our national and regional economies.”
- Eh?? At least we have commodities to sell to the world, what else is there? W
In terms of our food history actually fish is a staple....I dont eat eggs but I can see what he is saying....
GE hasnt increased the food production per hectare....at best it reduces losses or extends the shelf life of produce.....
A video to watch is the future of food....an eye opener...I wont ever buy EG food or American produce ever again....
regards
You're a waste of space Goofy. Helen and Cullen buggered off and left you holding the wooden spoon. But don't you fret none...Smiley wavey will appoint you to a fat salaried govt desk job just as soon as cunny klinger and her stab you in the back with a sharp Little.
Exclude energy and tobacco, then take away the GST rise and you get next to no inflation. Absolutely indicative of the current economy being in recession with little spending and retailers unable to raise prices despite rising costs.
Of course a lot of CPI survey participants from ChCh would have been excluded from the calulations (probably not to any great adverse affect), but had our 5 properties that have been included in the CPI survey since the late 90s had their pre-Feb EQ rents listed (which were down 10-15% on 2010 rents (due to a lack of demand for ChCh CBD rentals after Sept 4 and 2010 leases expiring), then I'm sure the CPI could have been a touch lower still.
Of course, none would be included this quarter as all are uninhabitable and only 1 will likely remain as the rest have been declared unrepairable.
Property investors can't be too sad about the current economic practice in this country.
Everyone pays more and more for their goods and services and prices are rising. Inflation is on the up.
But the Reserve Bank and the Government say it's all "one-off", "temporary", "headline", and we should not worry.
So they keep interest rates low.
As a result, many PIs' single bigest expense is being kept low. Sure, they have to pay the other higher costs but the low interst rates give them a big break on others, especially stupied savers in bank accounts.
Who ever said PIs were dumb?
Temporary drops in price are no concerns when one is not selling an asset wolly.
It IS you guys shreiking about a property collapse that are the ones doing the spriuking wolly.
Another thing to notice wolly: the PIs are usually happy, you anti-PI guys usually seem grumpy about things in general.
Hard worker, might I suggest being a PI is cleverer than being a hard worker? The brain will always earn more than the muscles.
You may not agree.
But I do agree with your comments re fluke investments and free seminar-type guys. The GFC sorted a lot of them out.
Same as the dot com bust sorted out many of the clever-dick technos.
Hard worker, might I suggest being a PI is cleverer than being a hard worker? The brain will always earn more than the muscles.
This is the problem, all these PI clowns running around thinking they are smart and getting rich. Do some real work and they might be of use to the economy.
With 20% of Americans using food stamps, what would you propose? Perhaps they could cure their hunger by selling houses to each other again.
And do you think NZ is immune to the problem when our debt profile is similar?
8% ? "One of the 512sq m penthouses attracted a maximum bid of $600,000 after it was listed for $1.58 million." But that's Queensland,Aussie, and of course...and we're different....
Just remember, next time you go to the supermarket and see 900g blocks of cheese rather than 1Kg blocks, that's also inflation doing its insidious work. Food companies are quietly reducing the contents of their products on supermarket shelves in the hopes that the average consumer isn't reading the label too closely.
900g when its still cheese isnt the worst....been onto that for a while....
When you buy a new packet of something you have checked before as suitable eg say tomato sauce with the highest tomatoe content and lowest suger and find that the tomato content has now halved and they have used corn syrup to replace it...and worse still added extra salt to hide the fact, thats when you get p*ssed....well I do anyway....900g is quite big lettering.....not so ingredient lists.... Or instead of something useful, you find the product is bulked with milk solids or soy, big issue if before it wasnt and you are alergic to something and didnt pick up the change Or another try cooking out of a book something and you use say typically 8 ingredients, shop stuff has 50% more of "other" things....and it makes no sense as to why its there.......if you can even find out what they are!
regards
Thanks Alex...its good to someone's actual words being spoken by them....
Goff, biofuel, yet he was in Govn when a company wanting to make a tallow to bio-fuel plant came calling and the Labour Govn said no. It takes several years to build a plant.....he obviously cant see very far ahead....
Hell would freeze over before I'd vote for this idiot.....oh wait....lets see what Jk and BE have to say......
:/
regards
God Labour piss me off - they sat back and happily watched the most reckless wanton spending and leveraging when they were in power, and blame the current govt for people's woes. It's servicing stupid amounts of debt on pointless luxuries and crazy house prices that's keeping people poor, not milk going up a couple of dollars. Give me a break.
Are National's policies really helping the situation though? It looks like a lot of voters will vote for National or anyone other than Labour not because they believe in National's policies but because they believe the other parties are just worse.
The problem with this is it creates an illusion - the National party believe that the voter has given them the mandate to carry on with their own selfish and damaging policies. If we don't actually believe in the party we're voting for then we should refrain from voting fullstop or at least see if we can't get a "none of the above" option included on the ballot papers.
“As the Condor of Cataclysm swoops across the globe and throws livestock into panic with the swoosh of its slow-beating wings, and causes Middle Eastern tyrants to biff missiles at the subjects they profess to love, and visits financial ruin upon one exhausted European country after another, and sets brother against brother in the hellholes of West Africa, and threatens nuclear cataclysm in Japan, and brings earthquake, flood and fire that send the people gibbering through the streets until the air is thick with the wailing of teeth and the gnashing of infants, and the end of the world is visible if you just walk to the end of the road and peer round the side of the dairy, lo, fluttering down through this apocalyptic maelstrom comes a press release that Woman’s Day has got a new editor. Her name is Sido Kitchin. Ms Kitchin finds the prospect of editing Woman’s Day “incredibly exciting”. “We have a royal wedding on the horizon,” she says, “so what a wonderful time to be starting Woman’s Day”
The point I would take is around us we have the biggest financial disaster ever, on top of that peak oil will kill our lifestyles and some brainless twerp is "excited" to be editing a worthless rag....for worthless readers who's depth of thought seems to match yours....shallow....
regards
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