Household living costs rise by 7.2%

Personal Finance / news

Statistics New Zealand says the cost of living for households rose 7.2% in the year to June 2023, while food prices increased by some 12.7% for the average household

[updated]

27th Jul 23, 11:16am by David Hargreaves

Source: 123rf.com

The cost of living for the average household increased by 7.2% in the 12 months to June 2023, according to new figures from Stats NZ.

These figures are as measured by Stats NZ's quarterly household living-costs price indexes (HLPIs).

The principal difference between these figures and the Consumers Price Index (CPI), which showed annual inflation running at 6.0% for the year to June, is in the treatment of housing.

The CPI measures the costs of building houses (these were up 7.8% over the 12 months) - while the HLPIs measure mortgage interest rate costs, (which showed a 28.8% rise over the year).

The latest HLPIs figure, while higher than the inflation figure as measure by the CPI has still moderated somewhat, down from 7.7% as of the March quarter and from a peak of 8.2% as of the December quarter 2022.

Food prices have been a major contributor to the latest figure.

"Food prices increased by 12.7% for the average household," Stats NZ's consumer prices manager James Mitchell said.

"This was the main contributor to higher living costs for most household groups."

(Stats NZ says The HLPIs measure how inflation affects 13 different household groups, plus an all-households group, also referred to as the average household. The consumers price index (CPI) measures how inflation affects New Zealand as a whole).

"Higher prices for interest payments and grocery food were the biggest contributors to the 7.2% increase," Mitchell said.

"These were partly offset by lower prices for private transport supplies and services, things that keep your vehicle running, such as petrol and diesel."

On July 1, 2023, half-price public transport fares, the cut in fuel excise duty of 25 cents a litre, and the cut in road user charges were removed. Any impact this will have on prices will come through in the September 2023 quarter.

Between June 2022 and June 2023 prices in order of their contribution to the overall movement for:

interest payments increased 28.8%
grocery food increased 13.2 %
private transport supplies and services decreased 9.9%
rent increased 4.8%
fruit and vegetables increased 21.2%.

Stats NZ says its two measures of inflation are typically used for different purposes. A key use of the CPI is monetary policy, while the HLPIs is to provide insight into the cost of living for different household groups.

A look at the quarterly breakdown of spending on rent and interest costs shows that beneficiaries (29.7%) spent the biggest proportion of their household spending on rent, while the highest-expenditure households spent the biggest portion of household spending on interest costs (7.4%).

In terms of 'all households' the spending on rent was 13.4% of household spending, while for interest costs it was 4.7%.

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61 Comments

by GV 27 | 27th Jul 23, 11:26am 1690413962

I'd love to know what that figure is for people who a) actually have mortgages and, as a subset, b) relatively recent mortgages (which in theory would be larger and also capture a huge chunk of FHBs).

by Independent_Observer | 27th Jul 23, 11:27am 1690414057

Until this changes, there is going to be continued pressure on wage increases - and this will feed into business labour costs, which is going to feed through to increasing consumer prices (either that or the businesses shrink/or fail).

It is quite the conundrum because it would appear the only way out of this is to destroy more demand from the economy - which may require even higher interest rates (as this is the only tool the RBNZ currently have), and this will just create even more of the above mentioned problem.

Until of course enough businesses fail and we reduce the demand of the typical consumer by reducing their wage and consumption demands.

Who would have thought that such expansive fiscal and monetary policy in 2020 could cause such a headache?

by bw | 27th Jul 23, 11:53am 1690415581

We probably have a decade ahead of us of the RBNZ etc trying to engineer, and maintain, the fabled Soft Landing. That's attempted by all of your above comment and trying to hold current overinflated asset price steady as all other components catch up. e.g. the price of a home falls from 7 to 6 to 4 time household income etc. But what are the chances of that in an economy beset by political advantage? Virtually none. So interrupting the Soft Landing will be periods of escaped Inflation and, yes, interest rate rises charging up behind them until prices are again reigned in.

Are interest rates going to fall? No. And after each chase, to catch threatening asset price rises, they will stabilise at a higher level each time. The ideal would be not to let prices escape at all, and keep rates slightly 'overtightened' at current affordable levels. But that's hard to see happening.

by Hamish | 27th Jul 23, 11:50am 1690415410

I think we have such an infrastructure and service deficit here now, that any pull back in 'discretionary' consumer spending is going to be gobbled up, and then some, but central and local government.

by bw | 27th Jul 23, 11:54am 1690415688

Looks about right. And in an economy as tiny as ours, there's only so much Debt that can be assumed at the gross national level before the cost of new borrowing takes off. And retail rates will be out in front of those.

by Advisor | 27th Jul 23, 12:25pm 1690417524

Our productive capacity is fairly limited and low-skilled mass migration is actually making things worse adding more to aggregate demand than economic supply. Our current account deficit is only doomed to grow or stagnate at unsustainable levels until foreign money markets force a correction upon us.

by FJP | 28th Jul 23, 5:07am 1690477623

“low-skilled mass migration”…. It seems you go by what you read in comments and potentially don't understand what it takes to migrate or what real shortages there are.

And no, I'm not referring to short term seasonal work. Engineers, doctors, nurses, teachers, business analyst… the list goes on.

by Pa1nter | 28th Jul 23, 6:54am 1690484085

The thrust of advisors beef with migration is super high skilled, high earning migrants are in the minority.

The rest arent adding value, other than providing the likes of advisor a range of affordable goods and services, to free him up to dedicate more time to highly productive pursuits. Like complaining about migration.

by K.W. | 28th Jul 23, 4:56pm 1690520178

Of the current 143,000 people in the country on work visas, only 12,000 of them are Essential Skills visas. What are the rest doing?

by Advisor | 27th Jul 23, 12:20pm 1690417203

True.

There are hidden costs of falling behind on new infrastructure, which only increase as the deficit grows. For one, an infrastructure deficit will put more pressure on existing assets and erodes its condition, leading to higher maintenance costs.

We're in a paradox where we lack the skills, discipline and funding to build large infrastructure projects, especially since these cannot be delivered within the 3-year election cycle.

Meanwhile, politicians don't feel excited about smaller or unsexy projects (3-waters, fixing potholes, putting up dividers on highways, etc.) that help plug the infrastructure gap in small increments since these don't offer the photo op that cutting ribbons on major visible projects do.

by sadr001 | 27th Jul 23, 1:04pm 1690419882

Builders make above average income in New Zealand. Say land cost 1 year of average income that leaves 2 years of average income for materials, consenting, engineering & architecture and 1 year of average income for the builder to get your house up. If a builder makes 1.5x average income it means 1 builder working for 9 months on his own would need to be able to complete a house to hit your 4x average income figure. If the builder would like things like annual leave, administrative staff, ird compliance, sick leave, etc it would mean an individual builder needs to be able to complete a house on his own every 6 months, less if he needs sparkies, plumbers, gib stoppers, painters, roofers, etc. essentially the wage of builders and trades set a floor under the cost of housing.

by Pa1nter | 27th Jul 23, 7:46pm 1690444013

The productivity of the average operator sets the price.

by starrider | 27th Jul 23, 2:40pm 1690425658

They would be engineering a world record. As a "soft landing" has never successfully occurred in recent history.

The closest anyone has come to a soft landing was Canada through the period 1990 - 2000. During this period inflation was tamed and the housing market stagnated but didn't really crash too hard. This meant that someone who purchased a house in 1990/1991 would make a loss if they sold prior to 2000 (taking into account realtor fees etc).

I'm still waiting for someone to produce reasons why the same thing won't happen here over the next decade.

by K.W. | 28th Jul 23, 4:54pm 1690520074

This is the outcome the US Fed is determined to avoid. Which is why they have pencilled in another 2 rate rises, which will take US rates higher than NZ, even though their inflation rate is currently 3% compared to our 6% (or 6.6% if you want to just focus on domestic inflation). Either the NZ or US central bankers doesnt have a clue ..... hmm, wonder which one it is?

“The worst outcome for everyone would be not to deal with inflation now. Not get it done. Whatever the short-term social costs of getting inflation under control, the longer-term social costs of failing to do so are greater. The historical record is very, very clear on that. If you go through a period where inflation expectations are not anchored, where inflation is volatile and interferes with people’s lives and economic activity, that’s the thing we really need to avoid and will avoid,” Powell said" [from this weeks Fed minutes]

by Te Kooti | 27th Jul 23, 12:26pm 1690417601

Your critical reasoning and understanding of macroeconomics has matured a lot IO.

by Independent_Observer | 27th Jul 23, 2:24pm 1690424647

Thanks TK - appreciate the compliment.

by npc | 27th Jul 23, 1:12pm 1690420344

When the solution to our economic woes is to destroy businesses, livelihoods and stored wealth - is it possible the system is a tad broken?

by donny11 | 27th Jul 23, 1:29pm 1690421370

The system is broke. China no longer wants to import our inflation. This was the backbone of our economic model. What are we going to do now? Make products or something...

by Advisor | 27th Jul 23, 3:08pm 1690427303

Make products or something...

Yikes, I don't think people have actually designed and made stuff in the entire history of this country, swapping food for other goods practically the entire time. There was a brief period a few decades ago when we assembled imported components into finished products for our domestic market (the reason why I mentioned design).

The experiment to move us on from food exports (without proper leadership and clear direction I might add) has failed terribly with food & fibre currently making up less than 11% of our economy but 69% of total exports.

by Avalanche | 28th Jul 23, 1:11pm 1690506660

What about Fisher & Paykel Healthcare and Appliances? Still have design offices here although manufacturing now offshored.

by autis | 28th Jul 23, 2:48pm 1690512512

Healthcare still manufactures here.

Appliances do a lot of offshore rebadging of their parent company’s products, if that counts as manufacture

by Independent_Observer | 27th Jul 23, 2:22pm 1690424524

It was broken at the GFC when the solution was to entrench inequality via excess debt creation/asset bubbles.

It is time to restore the middle class again. You know those people who go to work doing a normal job and can afford to buy a normal house.

The world and our economy doesn't need to be this way.

But it may require a more even sharing of the economic pie (and no I don't promote socialism - but we appear to have a system of socialism for the already rich, and a horrible form of capitalism that punishes the middleclass and the poor).

by Pa1nter | 27th Jul 23, 7:48pm 1690444130

The middle class don't really have much of a place when the labour market is billions of people.

by cantab | 27th Jul 23, 9:28pm 1690450127

Or maybe the system is just doing what would naturally happen (ie catastrophic market crash) but staging the destruction in a slower, more controlled manner. Flattening the curve, so to speak…

I do wonder if it could ever work in the long term though. The more patches you add to the balloon, the heavier it gets and faster it eventually falls.

We may look back on this time in history as “the era in which governments thought they could artificially control the economy by manipulating interest rates”…

by J.C. | 27th Jul 23, 12:08pm 1690416527

As a comparative benchmark using the ol' Truflation, yoy price inflation for 'food at home' in the U.S. is running at 5.92% - approx half the rate of 'food producin' Nu Zllun.

https://truflation.com/ 

by HGWR | 27th Jul 23, 12:29pm 1690417760

"the highest-expenditure households spent the biggest portion of household spending on interest costs (7.4%)"

This seems like good news, our inflation fight is primarily hitting those that can afford to pay.

by J.C. | 27th Jul 23, 12:55pm 1690419333

Yes it's interesting and suggests the nice-to-have margins on the supply side have less stress.

by interesting1234 | 27th Jul 23, 12:58pm 1690419499

7.4% to the wealthy is nothing in terms of impact on daily life compared to the same for those who don't have a dollar to spare at the end of the week. Those interest rates will be via investments like housing where they will offload some of the rise to the occupying tenants, thus reducing the already lesser impact.

by printer8 | 27th Jul 23, 2:41pm 1690425673

interesting

Agreed, those on basic wages living payday to payday will be increasingly struggling, and yes, the wealthy will not be greatly impacted especially those cash rich and partly being able to off-set rises with increased TD rates.

Although, not so sure about those with investment properties. From memory, a recent interest.co article indicated for the past year a $50 week increase in rents which is hardly going to off-set very significant increases in rates, insurance and mortgage interest costs . . . . and especially, for this financial year, the level of mortgage interest deductibility reducing from 75% to 50%.

However, there will be no sympathy for property investors on this site. :)

Cheers

by J.C. | 27th Jul 23, 3:31pm 1690428718

However, there will be no sympathy for property investors on this site. :)

With any investment decision, there should be an element of stoicism. Put it like this. You could have 2 different mindsets:

1. House prices go up every 7-10 years because that's what they told me in the seminar and it's validated by Granny Herald.

2. Worse-case scenario is that this investment could go to zero and I will lose everything I invested....and more.

#2 punter is in a far better position to deal with reality and different outcomes.

by Yvil | 27th Jul 23, 5:14pm 1690434847

Punter #2 will never make any money because he/she will be too scared to invest.

The person who will be successful is the one who understands both, point #1 AND point #2

by Zwifter | 27th Jul 23, 6:57pm 1690441066

The house always wins.

by J.C. | 27th Jul 23, 7:16pm 1690442218

Understanding #2 means you understand #1 by default Dr Y. But let's be frank, you're more attuned to the Ashley Church school than widely read in the worlds of Robert Shiller and Nassim Taleb.

by Pa1nter | 27th Jul 23, 11:00pm 1690455621

You don't seem to grasp them, or Stoicism.

Shiller thinks ol' ratty tat tat tat is bupkiss. You wanna hold the guy up as a genius we should listen to, while at the same time overlook where his views conflict with your own.

by The Black Swan | 27th Jul 23, 12:32pm 1690417950

The inflationary doom loop continues until the epic bust of the 21st century. The silent generation is the only living generation to experience what is about to happen within the next 12 months.

by Rob Reid | 27th Jul 23, 8:48pm 1690447696

My Dad was there in the 1930s (in the UK back then). He says he's never seen conditions as tough and unpredictable as now.

And the wild ride is only getting started.

by nktokyo | 27th Jul 23, 12:42pm 1690418561

I see TPM are going for a wealth tax. Have they consulted their own Iwi on this? The tribes own a fantastic amount of assets.

by General Comment | 27th Jul 23, 12:47pm 1690418830

I'm sure appropriate exemptions will be made.

by CeeJ | 27th Jul 23, 10:50pm 1690455055

Lab/nat/act govt

by Landgirl | 27th Jul 23, 1:21pm 1690420897

I’d love to know how many ‘shovel ready projects’ are still pumping massive amounts of money into unfinished projects - and the huge ongoing funds committed to reform programs which are now stalled, treading water or under further review - and add the huge insurance stimulus which will need to come towards rebuilding after the cyclone - combined with constrained productivity out of the primary sector due to it having been reasonably successfully re-oriented around environmental aims rather than productive pursuits (which will largely cap productivity for now- think carbon etc) - and the recipe for longer running inflation looks pretty potent. Don’t forget that the only way big spending by governments ever really gets whittled into history is largely via inflation, growth or higher taxes. Growth has nowhere to go and higher taxes have been ruled out - that leaves only one thing.

by donny11 | 27th Jul 23, 1:32pm 1690421576

Auckland Transport & Council seam to be putting projects on hold on account of there books. Other councils are in a similar boat. So we have a situation where both the private and public sector are slowing down at once. Not good Keynesian economics

by Advisor | 27th Jul 23, 1:49pm 1690422594

No need for councils to stop wasteful spending though.

Auckland Council spends $190 million on global accountants and big law firms in five years - NZ Herald

The gist of this paywalled article is that about $127m of this went to law firms while AC has 65 lawyers on its payroll at a cost to ratepayers of $9m a year. This wasn't known to the councillors or the mayor until recently.

Gets more interesting, some councillors are connecting the dots and alleging that those accounting firms are being contracted to keep such wasteful spending items hidden from councillors, the mayor and the ratepayers in creative ways.

by starrider | 27th Jul 23, 1:59pm 1690423149

USA inflation @ 3% today. Yet the Fed just increased their OCR to 5.5%

NZ inflation @ 6% (but really 7.2%) OCR 5.5%

I'm picking further movements upwards for the OCR. The whole point is to reduce borrowing and significantly reduce the amount of new borrowing. But on the other hand, we still have 6 months of people rolling off 2.x% mortgages to 7.x and 8.x% mortgages.

Orr has not been correct in any of his guesses for the last 3 years. So you can safely assume that anything Orr says about the future will be incorrect.

by Advisor | 27th Jul 23, 2:24pm 1690424661

It's going to get nasty. However, I suppose many of those who haven't bought in recent years and can afford to will pay the same fortnightly repayments and simply lengthen their mortgage term. This going forward would mean a higher interest portion and a lower principal repayment.

So, they have no real reason to cut discretionary spending and all that the rate hikes will have achieved are higher margins for banks.

by huttman | 27th Jul 23, 3:09pm 1690427382

technically the banks will not have higher margins because of higher interest levels. because they would also buy "credits" from the market on higher interest rates.

the only thing change regarding their profits is credit volume. and the higher interest rates, the lower volume.

by J.C. | 27th Jul 23, 2:25pm 1690424752

The whole point is to reduce borrowing and significantly reduce the amount of new borrowing. But on the other hand, we still have 6 months of people rolling off 2.x% mortgages to 7.x and 8.x% mortgages.

That just kneecaps the bubble. The problem is that too much of the nation's wealth is wrapped up in houses. There's a trade-off.

by Zwifter | 27th Jul 23, 3:09pm 1690427345

Well this is the big problem because rising rates do not affect everyone across the board to the same degree, increased mortgage rates see more money going out the door with zero return but those with TD's have money coming in the door for doing well basically nothing. Really its the ultimate wealth transfer isn't it ? The rich are getting dramatically richer while the working poor get poorer.

by J.C. | 27th Jul 23, 3:34pm 1690428897

....but those with TD's have money coming in the door for doing well basically nothing.

Cash does not protect one against inflation. Never has. It's very useful in deflationary environments where it holds its value. Japan has been like that until quite recently.

by Sam B | 27th Jul 23, 4:00pm 1690430456

The working poor don't have mortgages.

by Nellbell | 27th Jul 23, 4:08pm 1690430896

I think everyone is going to be poorer, just some more so than others. Maybe you are thinking of Banks and Supermarkets?

by Rob Reid | 27th Jul 23, 8:54pm 1690448068

That's it. We've had decades of creating tokens (demand), which has not increased supply, and actually buggered supply by suppressing and driving away young workers. So there is a huge unravelling underway. All the govt can do now is fiddle about trying to influence the distribution of losses.

by nigelh | 27th Jul 23, 3:39pm 1690429152

We must increase inflation to fight climate change, so says one of the a chardonnay socialists James Shaw, indirectly.

https://www.newshub.co.nz/home/politics/2023/07/climate-change-minister…

by Whatwillhappen | 27th Jul 23, 4:40pm 1690432818

I'm with K Gurunathan's column this week on Stuff - let's keep fighting climate change, but change the balance towards adapting before we don't have the money to pay for adaptation.

by Jonny.Foe | 27th Jul 23, 4:21pm 1690431711

Food costs were not the biggest contributor to the annual figure. Clarification from stats NZ below:

Between June 2022 and June 2023 prices in order of their contribution to the overall movement for:

interest payments increased 28.8 percent
grocery food increased 13.2 percent
private transport supplies and services decreased 9.9 percent
rent increased 4.8 percent
fruit and vegetables increased 21.2 percent.

by nktokyo | 27th Jul 23, 7:45pm 1690443923

Those damn landlords...

by Chaosinflesh | 27th Jul 23, 8:17pm 1690445872

What is the weighting for each? Last I looked, rent was 9%, though a far larger % of outgoings for those affected. Don't forget the median mortgage was less than half the median rent - coupled with higher incomes amongst the mortgaged - there's plenty of room for rate movement (and increased payments amongst that cohort) yet.

by K.W. | 28th Jul 23, 5:15pm 1690521319

What if you add #2 and #5 to come up with "Food" costs?

by Wrong John | 27th Jul 23, 4:50pm 1690433441

Fresh food & vege is the current killer. Doing a lot of carrots. Doesn't sound like it's much different in most other places. I'm just glad we don't have get our wheat from the Ukraine.

by Rob Reid | 27th Jul 23, 8:56pm 1690448187

I wonder if there are regulations on how many parts per million of shrapnel wheat can contain?

by The_Golem | 28th Jul 23, 2:14pm 1690510468

Given how much we import in the way of basics, that the US Federal Reserve has recently hiked rates to our level must surely mean our inflation is going to stay elevated, no matter what the RBNZ does.

by K.W. | 28th Jul 23, 5:17pm 1690521474

Domestic inflation has barely budged in 18 months, so yes, it looks like inflation is going to remain elevated. If rates dont go higher the NZ dollar will tank, so we will import inflation that way as well.