The pace of inflation has eased in the past three months of the year as the Consumers Price Index (CPI) increased just 1.2% in the first quarter, below analyst expectations.
Annual inflation in the 12 months to March was 6.7%, according consumer price index data released by Statistics New Zealand on Thursday morning.
The result was comfortably below most analysts forecasts, which had predicted it to be unchanged from 7.2% in December, but was driven primarily by a fall in international prices.
Stats NZ consumer prices senior manager, Nicola Growden said inflation was still at levels not seen since the 1990s, despite the decline.
Price increases in vegetables and dairy products were among the largest contributors to annual inflation. Vegetable prices have increased 22% in the past year while milk, eggs, and cheese rose 15%.
Cyclone Gabrielle had led to higher prices in certain crops - such as kumara - but it was difficult to quantify exactly how much impact it had on food prices generally, a Stats analyst said.
Housing costs were the next largest category, with construction costs climbing 11% and household rents lifting 4.3%. Both were down from the December rates, however.
An 8.3% drop in petrol prices helped take some of the heat out of the inflation rate.
Quarterly relief
The Reserve Bank of New Zealand had estimated a 1.8% increase across the quarter, while market consensus was at 1.5%.
The 1.2% quarterly lift in prices was the smallest increase since March 2021, when inflation started to pick up pace, and would suggest annual inflation was running at 4.8%.
Lower headline inflation will be welcome news for the Reserve Bank but it will be concerned about underlying data which shows domestic inflation continued to gather momentum during the quarter.
Annual non-tradable inflation increased to 6.8% from 6.6%, the highest since the series began in June 1999. The quarterly increase was 1.7%, up from 1.5% in the December quarter.
Non-tradable inflation measures the prices of goods and services that do not face foreign competition and is an indicator of domestic demand and supply conditions.
In a note prior to the data release, ANZ economists said there was a risk that if domestic inflation pressures remained elevated it could require another round of rate hikes.
The decline in headline inflation was driven mostly by falling international prices, such as petrol, while most local prices continued to climb.
RBNZ had forecast annual inflation of 7.3% for this quarter in its February Monetary Policy Statement, but that doesn’t mean it will change its policy in May.
The central bank was understood to be paying more attention to underlying inflation pressures than the headline number.
138 Comments
The guy from infometrics brad olsen was blowing his own trumpet and smelling his own excrement as he boasted to Heather DPA that it would be going higher to 7.4
"I've been right these last two times, I want the trifecta. Everyone in the office calls me boring brad"
No TTP, the RBNZ, and the US Federal Reserve are not on top of inflation. Central banks and governments are much more inclined to run inflation hot and get enough inflation to get sovereign debt to largely disappear and this is obviously their bias and playbook here. Yes we may see some disinflation or even deflation through the period but inflation never goes up in a straight line, and on the whole, it looks like we are moving into a long period of higher inflation. With more waves of inflation coming it looks more likely we coould even see the RBNZ move its inflation target higher so as not to cause too much unemployment, and if so more likely to see the Government slap on some price controls - rent controls anyone?
I love the logic of some people. So apparently you are way better off with only $1 in the bank because you are not going backwards with that but somehow you are worse off with a few hundred thousand in the bank because you are paying the tax on the interest and inflation is eating it ?
Round 2 fight.
Inflation in my view is about to start the next round and it will win.
I see many prices increasing this month and next and fuel tax ending will put in a big hit followed by another round of small hits followed by a killer blow because we are now in a wage/salary environment incredasing which will keep pressure on followed by a pause in interest rate increases and more migrants moving here to fill positions and houses.
Agree. The focus will be on domestic inflation. RBNZ will surely know that if they blink first and pause on raising the ocr there will be a mad sudden wage hike (retain workers before they leave for higer wages ) and a related spend surge (on top of the governments recent splurge on pensions benefits etc).. first time buyers wilĺ rush in prices will rise and we will have to start over to contain it.
There is a way to go yet. Hopefully this could be a peak but the work will be to bring it down again carefully.
Not really.
It takes time for a drop in import prices to flow through. For example, fuels are used by all businesses. Businesses that don't start dropping prices will lose customers to other more nimble businesses. Only oligopolies like supermarkets and banks will be able to hold prices up but eventually they'll start dropping prices too.
I'm not sure it's useful to extrapolate forward like that, I was actually quite surprised to read that from our author. Remember that CPI is compounding, so another 3 quarters at 1.2% would represent exponential growth. They would have to be significantly lower than 1.2% for CPI to end up at 4.8% annualised by EOY.
100% Agree.
Given the massive pain and suffering inflicted by even a few more months on higher than necessary rates we need these stats to come out every month!
Yes - like the rest of the developed world - every damn month! And perhaps the RBNZ should report / react every damn month too!
The new record high of non-tradable inflation is very worrying and it is a clear indication that a new round of OCR hikes will be needed. The OCR should be raised to at least 6% as soon as possible. At the very minimum, another 50 bps hike at the next OCR review will be needed.
Too late for that. The horse has bolted. We're in a stagflation loop now. The drop in fuel prices should have eased pressures domestically - but domestic price hikes are outpacing the cooling we're seeing globally. Future OCR hikes are going to result in higher wages, higher inflation and... more hikes. Given how hard it is to buy a home, and how much debt is concentrated on recent (see: younger) buyers, there is not the same gains to be had from increasing the OCR as previous economic wisdom suggests.
What definitely happens when you raise the OCR is an increase in pricing expectations and wage demands. There just isn't a big enough pool of people affected by it through mortgage rates to change consumer behaviour at the level to make it work anymore.
There just isn't a big enough pool of people affected by it through mortgage rates to change consumer behaviour at the level to make it work anymore.
Correct - but interest rates - work 2 ways- they increase mortgage rates- effectively reducing disposable income for those with debt, but they should also encourage saving (effectively reducing disposable income ) for those with excess funds.
That's the message Adrian Orr sent earlier this month- he wanted to see the savings rates banks were offering lift as an incentive to encourage those with disposable incomes to stop spending and save it instead.
the key to inflation is to stop the money sloshing around - which means you need to crimp the amount people are willing to spend.
Again, that model no longer works when inflation is running so hot that it is hoovering up the excess funds that you're supposedly going to get better interest on. You have spend more of it to get the same standard of living, but in likelihood, you're spending more to get less.
Like I say, we're almost certainly on a lock for stagflation at this point. Savings rates can be as high as they want if domestic inflation is pushing the basics of living up so fast that people have nothing left to save.
Savings rates can be as high as they want if domestic inflation is pushing the basics of living up so fast that people have nothing left to save.
Then there's those who cashed a house in around the peak, or retired and living on savings and rental income, or both, sitting on earnings accumulating from TD's as well allowing them to keep the same level of spending by profiting off of their spare savings they don't need immediately. Anecdotally this seems to be the trend with many baby boomers I know anecdotally, fair play as who wouldn't in the same scenario, but yet another factor fueling domestic inflation
Yip agree - a number of people I know that have retired in the last 5 years and are sitting on hundreds of thousands (some > $500,000) in cash funds/term deposits.
For them, they are welcoming these higher interest rates as they are mortgage free and have no rental properties etc.
Each time term deposits go up another 1%, they are earning thousands more in risk free income - which is offsetting the increases in their general expenses.
E.g. I have $500,000 to invest in term deposits
In 2020 my before tax income on a 2% TD was $10,000
In 2023 my before tax income on a 5.5% TD is $27,500
The increase in income is $17,500, but my general expenses (such as fuel, groceries, rates, insurances) haven't increased by $17,500 in the same period. So I am now significantly better off even though we are experiencing high inflation (expenses may have increased by less than $5,000 p.a. so I am now over $10,000 p.a. better off - based upon a typical retiree lifestyle that isn't excessively extravagant).
As previously pointed out, these rate increases are going to severly impact those who are carrying too much debt. Those in the situation above may now feel more wealthy and willing to spend the additional funds they have which could in turn create even more demand for the goods and services that we have the capacity to generate within the economy.
Nothing wrong with High School Economics
... but if you had listened in high school you would know that What you really want is the money sloshing around to be spent on increasing production. E.g. building new houses rather than buying existing ones
is closer to fiscal policy than monetary policy and is possibly why the government created tax incentives to invest in new houses and tax disincentives (removal of interest deductability) to buy existing houses.
For those with no debt and good cashflow, the pre-tax ROI on any savings (Investment) has to be >8% (possibly 9%) just to remain ahead of inflation.
So doesn't make sense to stop spending in favour of higher saving / investing on the basis of higher interest rates.
I know the theory but in practice most producers and service providers have debt. If the bank increases interest rates the service providers and producers have to increase prices to service this. It is unorthodox but I wonder if in NZ we would see prices fall if interest rates were cut (excluding house prices).
Nothing more is needed.
Talk to some builders. Talk to some real estate agents. Perhaps even talk to your bank. Perhaps even talk to a few CFOs. All these groups know that the bubble has popped.
Nothing more needs to be done. The ugly state of our economy will be visible to all by next quarter.
Real estate is not the economy.
The only economic growth needed right now is export led. For that we need skilled immigrants attŕacted by affordabĺe houses and food... and to get skilled kiwis back.
We need the dollar low but not too low.. inflation contŕolled and a move away from investment in housing to diversified savings and investment in productive economy and infrastructure.
The housing bubble had to burst asap to avoid a bigger bubble lqter. Now we need it to coñtinue to slowly deflate whilst we rebuild a productive economy.
We pretended by printing money and bidding houses up that it was a real economy. It wasnt and isnt the real economy.
Our housing market is (was) the most overpriced in the world
- houses went up mainly due to cheap credit, printed money and handouts.. all finding its way into residential property. that couldnt continue ad infinitum
- as a result we cant attract professional nurses, doctors teachers and so on as its too expensive here. So we cant use immigration to raise house prices anymore. our immigrants now seem to be poorer and here to help fruit pick etc... not exactly ideal for pumping house prices or contributing to their share of infrastrcuture costs or public services
- our exports numbers are so embarrasing so the current account deficit is a disaster. about to really complicate economic woes and result in a poorer country in many ways. less money for houses.
we cant drop interest rates or print any more money and we cant raise taxes (in fact in real terms wages will fall and taxes hey will drop - with inflation) to keep bidding houses up.
The bubble is burst and it seems there was no house market economy.... lol. I am not sure why anyone really ever thought there was one.. it was (to use a common term) a great big ponzi scheme relying on cheap credit and people turning a blind eye to infrastructure and public services falling way behind immigration numbers
Real estate is not the economy.
Erm... you sure? What do kiwis work for 40 years to put almost all their generated "wealth" in?
What are 25 year olds buying at 5-20x leverage?
I wish real estate wasn't our economy but it is. The sooner we get off that, the better.
Australian construction not looking too flash either
https://www.news.com.au/finance/business/other-industries/construction-…
8.2% drop in Petrol Prices and still a 6.7% increase in inflation (well above RBNZ target).
Does anybody know how to do the inflation math if Petrol is excluded from this?
As a metaphor it seems like we are happy we avoided the traffic jam because our car is broken down.
The number Kiwis want to be looking at is the non-tradeable inflation number - goods and services that do not face foreign competition. Effectively the inflation been passed through domestically
This was at record levels - ie the highest on record. This means the excuse that inflation is high due to international factors - is no longer valid. Our inflation is high because our own country is increasing prices.
The RBNZ cannot cool their heels - until domestic producers stop increasing their prices - only then will they be able to say inflation is under control.
I'm laughing.
A relative has just sent me a txt. "It worked." They are referring to the credits issued by a few of their suppliers who were claiming all price increases were coming from overseas. They called the supplier's bluff. One supplier got dumped. They got payback. Business at its best.
Who would have thought raising interest rates on mortgages, had an effect on people's ability ( or more so willingness) to go out and buy the next jetski and spa pool. Wonder how cafes and small businesses are going to survive with min wage increases coming again, and a slow down in economic activity.
Lots of talk in my industry of people reducing those extra bits and pieces they were buying when rates were 2.5-3%.
Recession in coming.
Time To Print
The Reserve Bank of New Zealand had estimated a 1.8% increase across the quarter, while market consensus was at 1.5%a
Jeez, I'd love a job where i could get paid mega bucks and make predictions that were out by 50% and nobody bats an eyelid! WTF are these people doing all day?
The Reserve Bank's forecast was from early February, whereas bank economists updated their estimates on Monday. RBNZ's number was truly a forecast of the future, whereas numbers published this week (still wrong) were estimates of what had happened in the past.
Predicting the future is hard (or impossible), so the goal is to generate a number that is helpful for making policy decisions. It only has to be in the correct ball-park to be useful.
Cyclone Gabrielle had led to higher prices in certain crops - such as kumera - but it was difficult to quantify exactly how much impact it had on food prices generally, a Stats analyst said.
These guys/gals need to get out more too!
Even if they'd picked up the phone and talked to some growers they'd know that our shtitty summer that culminated in the Akl Ann Day floods and Cyclone Gabrielle destroyed huge swathes of crops all over the north island.
They may not be able to exactly quantify the effect on food prices but any reasonable statistician would be on safe ground to to say it has had a major effect!
It seems whatever I predict is bound to be wrong! The previous two quarters I predicted inflation to be much lower than expected due to falling fuel costs and was wrong, this quarter I predicted it to be higher than expected and was wrong again. I guess if I keep predicting high inflation then I will be wrong and the problem will go away...
Not wrong.
Like most of us, including economists, we tend to underestimate the time it takes for change to flow through a small uncompetitive economy like NZ's. NZ's 'market' for unfinished goods is still largely bound up in the old boy network and supplier relationships (and prices) change infrequently.
In the USA, things happen real fast. NZ? Not so much.
New Zealand businesses will be reluctant to drop prices back just look at price of dairy compared to auction prices.
I just checked coles.com.au prices amazed at how much better they have been held down compared to NZ we are I am afraid to become the country with the highest living costs in the world.
Yes -so easy to administer (bookkeeper's nightmare)
Hot food
'Hot food' is defined as food for consumption that has been heated above the surrounding air temperature. Hot and cold food supplied as a single item for consumption away from the premises(such as sausage and onion on a slice of bread) is subject to GST.
Food you sell while it is still warm because it happens to be freshly cooked is GST-free (unless it falls under another category of taxable food). For example, freshly baked bread is GST-free.
Monetary inflation can manifest as price increase, as a result of the increased demand created by money/credit growth.... and it can also manifest in our trade balances in a quantity sense , as we buy/import more stuff.
Our trade balances and current acct. ...... is pretty bad..
https://www.interest.co.nz/charts/overseas-trade/trade-balance-monthly
Don’t worry construction will be fine. That’s what all the ministers and bureaucrats think and say. Very few Economists have been sounding warning bells about it. This website keeps up with articles saying it still looks fine and dandy. It will be fine and there won’t be significant job losses.
sarc on
Pressure will come on Stats NZ to get these numbers out earlier. Sep 22 quarter was 2.2%. If we can keep to 1.1 for the next 2 quarters including Sep 23. They may be able to get the headline number starting with a 4 by September Quarter and the CPI announcement into the news cycle before October 14th. That will be a huge boost for Labour's election chances. There is also an RBNZ MPR and OCR scheduled for October 4th. That will be the first OCR cut for 2023.
I don't see any cuts coming this year sorry, wouldn't hold your breath. Expect some levelling off and no further rises in 2024, could be 12 months before we see any falls and then how long will the banks take to drop rates ? Better hope that mortgage doesn't roll over for at least 12 months.
Agreed. I'd expect Shock and Orr to raise once more (possibly substantial), then hold and talk sternly, with a cut (possibly substantial) coming before the election. Quite possibly with a mea culpa along the lines of, "Sorry better to overreact with inflation than let it get out of control." Alas. By then the damage will have been done.
I have a question. Even if we go into very low inflation like 1-2%going forward, it's still on top of very high inflation we had for last one year. So we are not going to be any better.
We need to deflate to be able so enjoy the prices or the lifestyle we had before covid. The salaries or the minimum wage has not increased as the prices have gone up due to inflation. A poor man is always a loser, no matter want.
The political parties just play with people's lives and livelihood in the shade of numbers. Pathetic really.
An inflation rate of 1% means that about half of all goods being traded are suffering from low levels of deflation while about a quarter have not moved much while about a quarter have moved up by larger amounts. (Actual percentages vary greatly.) Most economists would call an inflation rate of just 1% as being a sign that deflation has taken hold. And they'd be getting quite worried. Me? I'm more sanguine. Deflation in real terms happens much more than people realise.
Nope. Summer veggies go up in price and winter ones come down.
Coleslaw is a good example. Main ingredients are carrots and cabbage with some finely sliced onion and/or celery (mixed together with the minimum amount of mayonaise). All winter vegetables. (Homer voice: Ummmm. Coleslaw! Coleslaw, steak and chips, rough red ... yummy.)
I'm guessing you don't do the food shopping? I do it in our house as it's the only shopping experience I enjoy.
As I have been saying, RBNZ is now over reacting, using out of date data to support decisions where the lag period is 9-18 months from their decisions. Where are all the people who were on here saying inflation is increasing? Suddenly all these "economists" are changing their tune to what was obvious if you have one ounce of common sense.
These idiots running monetary policy in this country are overreacting the other way and will pat themselves on the back for it. Yet again make terrible decisions and continue to be unaccountable for their idiocy.
The quarterly increase was 1.7%, up from 1.5% in the December quarter.
And there it is. We are spending too much and need to change our behaviour. Companies are now exposed for claiming external reasons for price hikes, greed is apparent. Time to call bull on all the price hikes and this alone should at least slow the rate of price increases as companies learn they can't keep the same margins anymore. Building materials should see a decrease in prices going forwards and any other industry where prices have been hiked far beyond what is reasonable.
I would have thought this figure was within the margin of error, as it isn't far off the 'prediction'. Shows interest rates are having an effect, especailly when compared to what Australia are doing. Food price inflation in NZ is the killer and that is partly due to a lack of competition. If supplier costs have only risen 10.7% when why are super market prices 12% higher? If the government brought in urgent regulation to control the prices, then we could potentially fix this in the short term and help with inflation, and interest rates then may not need to rise much further.
Indeed. Disconnection describes it perfectly.
That said, the damage is already done - even for those that haven't yet been hammered by re-fixing. I.e. even if the RBNZ rapidly drops the OCR before the next election (as many believe is preordained) there is no guarantee that retail banks will drop their rates in any hurry. Banks, like oil companies, are fully aware of the benefits, to themselves of course, of Rocket and Feather Pricing.
This is at odds with the tracker online at Massey Uni http://gdplive.org/Dashboard#map
Time will tell.
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