New Zealand's central banks warns today of more persistent consumer price inflation pressure – and nowhere is that better epitomised than by the 43 percent year-on-year rise in the price of an everyday fruit
When Gina Maio opened her first Italian restaurant in Auckland, her biggest challenge was sourcing basic ingredients like olive oil (which she bought from the pharmacy) and Italian cheeses and salami.
Now, at the restaurant that still bears her name, chef Alessandro Fantoni struggles to get a much more commonplace ingredient. Tomatoes.
Fantoni grew up eating his mother's spaghetti al pomodoro; the tomato is a staple in Italian pastas, pizzas and salads. But now soaring prices are forcing him to reduce the quantities of tomatoes he uses at the famous Gina's Italian Kitchen in Auckland
In its monetary policy statement, today, the Reserve Bank has acknowledged the risk of rising prices. "More persistent consumer price inflation pressure is expected to build over time due to rising domestic capacity pressures and growing labour shortages," it says. "Uncertainties remain as to the pace and magnitude of any pass-through of costs onto medium term inflation, especially given reported underutilisation of labour, modest wage growth, and well anchored inflation expectations."
According to Statistics NZ, fresh tomatoes are already up to $11.19 a kilo this winter with two months still to run until they peak, which is consistent with the $11.99/kg that Countdown.co.nz is selling loose tomatoes at this week. That is making it harder for Fantoni to serve up his traditional insalata caprese. And even canned tomatoes and tomato sauce are up in price.
The 11.5 percent year-on-year increase in the price of vegetables is the biggest in four years, and pushes overall food prices up 2.8 per cent. It was driven by tomatoes, cucumbers, lettuce, capsicum, and broccoli which, even allowing for seasonal volatility, have still smashed price records.
The price of fruit has risen 6.4 percent in the past year, and so too lamb (8.4 percent), pastry products (8.3 percent), yoghurt (9.2 percent) eggs (4.5 percent), ready-to-eat meals (4.1 percent) and restaurant meals (5 percent).
The only real food price reductions to offset those rises are for pork (down 2.2 percent) and oils (down 5.2 percent).
The increased restaurant meal prices have been largely driven by the fast food chains, which have passed on the April increase to the minimum wages, now up to $20 an hour. McDonald's Big Mac burgers, for instance, are up 30c to $6.90 in the past year.
And that's indicative of a bigger story.
The food price rises were revealed on the eve of the Reserve Bank's monetary policy statement, in which Governor Adrian Orr and the Monetary Policy Committee are announcing their response to mounting inflationary pressure.
This statement may be better billed the Tomato-ry Policy Statement, but the price pressures are right across the economy. Wages, cars, petrol, rents, houses, everything must go ... up.
And it's not just New Zealand. This week the US reported that its inflation rate had accelerated to 5.4 percent, its highest level since 2008, and well above forecasts of 4.9 percent. The biggest price increases were recorded for used cars and trucks (45.2 percent), petrol (45.1 percent) and transport services (10.4 percent). Housing costs were up 2.6 percent and food up 2.4 percent.
Business news service Trading Economics points to the impact of high commodity prices, supply constraints and higher wages weighing on that country's CPI. "Inflation has been on the rise this year amid low base effects from 2020 and as the economic recovery picks up, business restrictions ease and demand surges amid widespread vaccination and federal support."
A rise to the official cash rate, which has been sitting at 0.25 percent for the past 16 months, is the most effective tool to rein in rising inflation – but it's too late to stop inflation exceeding the Reserve Bank's target of 2 percent, when the consumer price index is published on Friday.
Food
Statistics NZ published its monthly Food Price Index yesterday, setting the stage for the Reserve Bank's statement.
“We typically see price rises for many vegetables in winter due to seasonal effects,”
Acting consumer prices manager Matthew Stansfield said it was typical to see seasonal price rises for many fruits and veges at this time of year – but this year the rises were larger than usual, and embraced a wider range of vegetables.
"Not all seasons are the same and this year, for example, there’s been hail in Pukekohe and floods around Ashburton. Returns have not increased for a decade. But of course, costs have increased."
– Andrew Bristol, Tomatoes NZ
Capsicum prices rose 27 percent to a weighted average price of $24.16 per kilogram, an all-time high.
Conversations with the horticulture industry suggested supermarkets typically freighted in summer vegetables from overseas at this time of year, to supplement local hothouse tomatoes, capsicums, cucumbers and more. But with international supply chain problems and freight prices soaring, that was contributing to the high prices paid by fruit and vege shoppers.
The only fresh vegetable prices to fall in June were kumara, pumpkin, and mushrooms.
Tomatoes NZ spokesperson Andrew Bristol dismissed the high prices for tomatoes, recalling just four months ago when a Hawke's Bay supermarket was practically giving them away at 9c/kg. "Tomato prices go up and down," he said.
"Not all seasons are the same and this year, for example, there’s been hail in Pukekohe and floods around Ashburton."
Farmers were not benefiting from the higher prices. "Returns have not increased for a decade," he said. "But of course, costs have increased."
Rents
With somewhat less fanfare, Stats NZ also updated its rental prices index – and that revealed some stark regional differences.
Nationwide, the prices paid for new lease agreements increased 4.9 percent in the year to June. That's called the "flow measure" of rents. But when existing tenancies are factored in (the "stock measure") then the increase in rental property prices was 3.1 percent
The flow measure tends to be more volatile than the stock measure, Stats NZ says.
What was most marked, said Stansfield, was the rapid increase in rents in Queenstown.
In the South Island (excluding Canterbury) rents on new lease agreements rose nearly 12 percent in the year to June 2021.
That reflected the low base last year, when Queenstown and Wanaka were feeling the pain of the absence of tourists more starkly than other regions, and landlords were flooding the long-term rentals markets with homes and apartments that had previously been lucrative AirBnB properties.
Short-term accommodation like BnBs, hotels and motels are not included in these figures, which are based on bonds lodged with Tenancy NZ.
House prices
Median prices for residential property across New Zealand increased by 28.7 percent from $637,000 in June 2020, to $820,000 in June 2021, according to the latest data from the Real Estate Institute this week. Twenty districts reached new record median highs.
Auckland’s median house price increased by 25 percent to $1.15m in June 2021 – another new record.
The most dramatic increase was in Marlborough, where median prices jumped 56 percent to $705,000.
Both the Reserve Bank and the Government have imposed new controls on the property market in the hope of reining it in and making houses more accessible to first home buyers – but it appears to have been of only limited success.
"More than half of the regions saw an uplift when compared to May suggesting that the market is refusing to cool," said Jen Baird, chief executive of the Real Estate Institute. “Those buyers hoping for a bargain over winter might be disappointed, and today’s data really points to how important it is to address the housing supply issues we have."
The continued house price increases reported this week put further pressure on the Reserve Bank to signal interest rates hikes, beginning as early as November this year.
Wages
We don't have any new figures on wages this week – much like the actual wages, there's a lag behind other inflationary indicators! In the year to March, the labour cost index of salary and wage rates, including overtime, increased 1.6 percent. April's increase to the minimum wage is expected to provide a small bump to other low income workers as well.
Public sector wages increased slightly faster at 1.8 percent over the year, in part because of the progressive implementation of pay equity settlements starting with care workers in 2017.
Wages, as measured by the Quarterly Employment Survey, also grew over that period, up 2.6 percent to $34.52 an hour. Here, there's a sharp different between private sector workers whose hourly earning increased by 3 percent to $32.62m and public servants whose ordinary time hourly earnings increased 2.2 percent to $41.87.
Average weekly earnings, including overtime, for full-time equivalent employees were up 2.4 percent to $1,328.43 – with public servants earning nearly $250 more than those in the private sector.
The signals are that district health boards and the country's xx nurses are close to reaching an agreement that would push up public sector pay further. The NZ Nurses Organisation is asking for a 17 percent pay rise for its 30,000 members, reflecting in part what has been asked of the profession in Covid. The DHBs have offered pay increases between 0.9 and 12.2 percent with those on lower salaries getting the largest increases.
Statistics NZ's quarterly labour cost index can be compared to the consumers price index, which increased by 1.5 percent in the same period.
Credit card spending
Overall card spending was up 0.9 percent in June, driven by spending on consumable goods, Stats NZ reported this week.
Seasonally adjusted card spending on consumables, which includes spending on groceries, liquor, and specialised food, was up $41 million (1.8 percent) compared with May. This was the largest growth in any of the core retail industries in June.
“Supermarkets have seen the biggest rise in Kiwi spending in June,” business statistics manager Ricky Ho said.
“With some particularly wild weather at the start and end of the month, New Zealanders may have been keener on stocking up on supplies and staying in.”
While consumables saw the largest increase, spending was steady across the board. Seasonally adjusted retail spending was up $54 million (0.9 percent), and total spending was up $134 million (1.6 percent) in June compared with May.
“Spending remained robust in June, despite Wellington moving into and out of alert level 2 towards the end of the month,” Mr Ho said.
Seasonally adjusted retail spending increased by $763 million (4.5 percent), and total spending was up $989 million (4.5 percent) in the June quarter compared with the March quarter.
Future spending plans
What is perhaps more important than what prices have done over the past year, is what they will do in the coming year.
Economist Tony Alexander conducts a monthly survey of spending intentions, also published this week. And that provided an even clearer signal to the Reserve Bank of the likelihood of inflationary pressure.
For the third month in a row, an increasing majority of respondents (1430 of them this month) said they planned on spending more in the next 12 months.
"This bodes well for the sales of retailers as we head through winter into spring," Alexander said.
"There has been yet another rise in plans to spend on home renovations, but a sizeable drop in plans for travelling offshore. The offset to that is a lift in domestic travelling intentions to the highest level since February.
"The overall positive nature of the results is supportive of continued growth in the economy and labour demand, and therefore further deepening of the staff sourcing difficulties which businesses are facing. The results add to the list of indicators supporting a tightening of monetary policy very soon."
