Fruit, ready-to-eat meals, cars, petrol and rents – rising prices for a few products and services are a sign the days of low inflation are over. New statistics confirm, there's no such thing as a cheap lunch.
Val Volevach works in freight forwarding; every day she sees the impact of the pandemic on customers trying to shift their products around the world. "It's been a busy year, because customers want everything delivered now."
So, out buying some groceries to make chicken wraps for dinner for her partner and 3-year-old son, she's philosophical about the prospect of rising prices. "Supermarket shopping is quite a hit on our budget, as much as rent," she says. "For our family of three it costs about $150 a week – and I like wine, so that's not counting beverages!"
New food price inflation figures, published by Statistics NZ on Thursday, show prices have risen only 0.5 percent in the past 12 months. But the headline figures mask a more complicated picture, consumer prices manager Katrina Dewbery says. Porterhouse and sirloin steak dropped 10 percent, dragging down meat prices – but fruit, pasta, ready-to-eat meals and dining out at restaurants have got more expensive over the past year. Prices for lunch rose 4.8 percent.
At the same time, new statistics show rents have risen 3.1 percent in 12 months, and petrol prices have risen 10 percent. These all feed into next week's quarterly Consumer Price Index figures.
Clogged global shipping channels, because of Covid border delays, contributed to some price rises. For instance, New Zealanders famously eat more bananas than almost anyone else in the world, so when some supermarkets experienced a shortage of bananas last month because of a delayed shipment, it had quite an impact on our groceries budget. The price of bananas jumped 8.2 percent.
At 1.4 percent, inflation has been too low for economists' liking; there have been fears it could drop into deflation, sending the economy into freefall. So the Reserve Bank has been pumping new money into the economy, to encourage Kiwis to spend their way out. The Bank's target is 2 percent – and inflation is now forecast to exceed that for the first time.
Indeed, it would already have topped the Reserve Bank's target, except that the Government this year ended a decade-long run of annual 10 percent hikes to tobacco excise tax. That will leave more money in the pockets of the half million Kiwis who still smoke, and their families who are predominantly in cash-strapped Māori, Pasifika and other lower socioeconomic communities.
The Reserve Bank's Monetary Policy Committee said this week: "Near-term price increases are likely, and these will see headline inflation exceed 2 percent for a period. However, members consider the impact on inflation from supply chain disruptions and oil price increases to be temporary."
It warned: "Higher headline inflation, if sustained, may feed into higher inflationary expectations."
"In good times, small price increases are manageable, as they are usually matched by rising incomes. But in an economy still recovering from recession, price rises can really hurt."
– Finn Robinson, ANZ
ANZ economists think inflation has risen slightly faster than they expected and today they will update their forecast for inflation to peak at 2.3 percent around the middle of this year.
ANZ economist Finn Robinson published a report yesterday saying it's hard to know the extent to which supply chain disruptions and capacity constraints in the economy will push prices higher. Rising oil prices over the quarter are expected to drive a 4.9 percent rise in fuel prices.
Expanding on that to Newsroom, he says that in an economy still recovering from recession, price rises can really hurt. “For people on the street, rising prices can mean that a larger portion of your paycheck is sucked up by rent, filling up the car, and even putting food on the table. In good times, small price increases are manageable, as they are usually matched by rising incomes.
"Businesses are also feeling the pinch. Global supply chain disruptions are putting upwards pressure on the price of imported goods, and the closed border means that firms typically dependent on migrant labour can’t get it.
"To some extent, current inflation pressures are symptomatic of this dynamic (as firms pass on rising costs), but the fact that firms are also reporting squeezed profitability suggest they are also letting their bottom line absorb some of it – that can’t go on forever. However, we do expect price pressures to reduce in time once supply chain bottle necks are worked through and the borders eventually reopen.”
"Food’s gone up. Petrol’s gone up 20c in the past three or four weeks. Everything seems to be going up.”
– Sharon Cullwick, Property Investors Federation
Food is a tad under 19 percent of the average household's weekly costs – but accommodation is even more. Those living in rentals spend 34 percent of their weekly budget on their rent; those who own a mortgaged home spend 32 percent on repayments and rates.
The Statistics NZ rental price index, published yesterday, shows new rental rates have risen 1.6 percent in the past 12 months. Factoring in rent rises for existing tenants, that figure leaps to 3.1 percent – continuing an alarming increase in rents over recent years. And a survey shows four out of five landlords say they expect to raise rents even further this year.
Sharon Cullwick, the executive officer of the Property Investors Federation, says it's hard for everyone. "Food’s gone up. Petrol’s gone up 20c in the past three or four weeks. Everything seems to be going up.”
Francis Rota agrees. The real estate agent and her truckie husband have moved from Ninety Mile Beach to Auckland this year, so their youngest son can attend Auckland Grammar School. Especially coming from the Far North, the Auckland rents are the toughest part, she says – and she doesn't relish them rising further as Cullwick warns will happen.
And Rota says filling up her husband's Isuzu ute with diesel is getting pricier, too.
She looks ruefully at her shopping trolley. "Meat and vegetables are very expensive, compared to cheaper, less healthy items like chips and sugary drinks. Healthy is expensive!
"The economy has changed so much that I think the Government may look at taxes on food to help in those other areas."
In Kaitaia, some fresh food was more accessible – she could buy fruit and veges at the markets, or get homekill meat. But she says there is a wider range in the big supermarkets in Auckland.
"I'm nearly 50, so in the day when my four kids were growing up, I realise there were always huge hikes in the price of food. Whereas now, it's not going up as fast as it was.
"With coronavirus and everything that's happened, lots of businesses have closed down and people are struggling. It's not going to be easy if prices increase again."
