According to Stats NZ, the consumer price index grew 5.9% from the December 2020 quarter to the December 2021 quarter, the largest increase since a 7.6% yearly increase from the June 1990 quarter to the June 1990 quarter.
What is the current inflation rate in New Zealand in 2022?
“The situation we’re in right now (or by the end of 2021, at the very least) is the greatest inflation rate we’ve seen in 32 years…
“In recent weeks, the Reserve Bank has expressed concern that inflation could reach 6.6 percent by the start of 2022. Of course, this was all before Russia invaded Ukraine.
“So you’ve seen a significant rise upwards in a lot of commodity prices since the Russian invasion, and that’s going to continue to push up the price for New Zealand consumers in a variety of ways.”
Have we ever had inflation as high as 7.4 percent?
“We’re witnessing, you know, once-in-a-generation inflationary pressures that we haven’t seen in three decades,” adds Olsen.
In New Zealand, what is the CPI increase for 2021?
New Zealanders’ household living expenditures are rising as yearly price inflation reaches a new high, according to the latest estimates.
Annual price inflation (the difference between the December 2020 quarter and the December 2021 quarter), according to StatsNZ data issued on Thursday morning, was 5.9%, up from 4.9 percent in the previous (September) quarter.
According to StatsNZ, this is the largest yearly increase since the June 1990 quarter, when annual inflation hit 7.6%. The price difference between the December 2021 quarter and the September 2021 quarter was 1.4 percent.
The Consumer Price Index (CPI) measures price changes on a quarterly and annual basis using a set sample of products and services (for example, food, housing, transportation, and health).
What is New Zealand’s average inflation rate?
Consumer Price Index in New Zealand (CPI) Inflation in New Zealand has averaged around 2.15 percent since 2000, according to the CPI (Consumers Price Index). This is in contrast to averages of 2.4 percent in the 1990s and over 11 percent for the previous two decades.
What will the inflation rate be in 2021?
The Consumer Price Index (CPI) increased by 5.5 percent from 5.4 percent in December 2021 to 5.5 percent in January 2022. This is the highest 12-month CPI inflation rate since the National Statistics series began in January 1997, and it was last higher in the historical modelled series in March 1992, when it was 7.1 percent.
CPIH was stable on a monthly basis in January 2022, compared to a 0.1 percent drop in the same month the previous year. The strongest downward contributions to the monthly rate in January 2022 came from price drops in apparel and footwear, as well as transportation. Housing and household services, food and non-alcoholic beverages, and alcohol and tobacco were the biggest contributors to the monthly rate going increased. Section 4 contains more information about people’s contributions to change.
The CPI declined 0.1 percent from the previous month in January 2022, compared to a 0.2 percent drop in the same month the previous year.
The owner occupiers’ housing costs (OOH) component, which accounts for roughly 17% of the CPIH, is the principal cause of disparities in CPIH and CPI inflation rates.
Why is inflation in New Zealand so high?
Consumer Price Index (CPI) inflation soared to 5.9% in the year ending December 2021, up from 4.9 percent in September, 3.3 percent in June, and just 1.5 percent in March.
The necessary commodities and services – food, housing, and transportation – have led price hikes. In December 2021, annual food prices were 4.5 percent more than a year earlier, rentals were up 3.8 percent, and gasoline prices were up 30 percent.
“We are not alone in suffering high rates of inflation,” Prime Minister Jacinda Ardern correctly stated.
In the 12 months leading up to the December 2021 quarter, Australia’s CPI increased by 3.5 percent, while the UK’s CPI increased by 5.4 percent. Inflation has reached 5% in the Eurozone and 7% in the United States.
The challenge will be: how can we help the low-income families who are the most harmed by these trends?
Same problem, many causes
The consequences of trillions of dollars in fiscal and monetary stimulus, pent-up demand, increases in shipping costs, persistent supply-chain disruptions, and rising energy prices are all contributing to global inflation.
Shipping costs in May 2021 were more than 200 percent higher than in May 2020, according to the Freightos Baltic Index, which tracks daily pricing of containers delivered by sea and air.
Businesses were paying over US$5000 in September 2021 for a 20-foot container from Shanghai to New Zealand, which cost around US$500 previous to the pandemic.
In the year to November, energy costs in the OECD increased by 27.7%, the highest pace since June 1980.
Interest rates will keep rising
When inflation rises, central banks typically interfere by raising interest rates in order to slow the economy and reduce inflation. The Reserve Bank of New Zealand (RBNZ) sets the official cash rate (OCR), which is reviewed seven times a year.
It increased the OCR by 25 basis points (a quarter of a percentage point) to 0.50 percent in October of last year, the first increase in seven years, and then hiked it again in November to 0.75 percent.
This was expected, and I plan on doing another hike of similar magnitude in February.
In fact, the most likely scenario is that the RBNZ will continue to raise the OCR in 25-basis-point increments, with the cash rate hitting 2% after its policy decision in August 2022.
However, if local and global economic concerns increase, we can expect increases of 50 basis points from some of the policy decision meetings.
Inflation affects rich and poor differently
According to new research, households in different income levels did not perceive the 7% inflation rate in the same way: for the lowest-income families, it felt like 7.2 percent and for the highest-income families, it felt like 6.6 percent. The increase in grocery and gas prices is the primary source of this disparity.
In New Zealand, I believe we are in a similar scenario, where price rises for food, transportation, and housing are disproportionately destructive to low-income households.
Wages are expressed in dollars (the nominal wage), but when you go to the store, what matters is your actual wage, which is expressed in terms of the things you can afford to buy.
The real wage is determined by multiplying the nominal wage by a price index such as the Consumer Price Index (CPI). When it comes to inflation, it’s important to remember that real earnings might fall even if nominal wages don’t. This is also taking place in New Zealand.
Wages have risen, but not quite fast enough to keep up with inflation.
Raise the minimum wage?
How should the government deal with the effects on low-income families? There have already been requests for a raise in the minimum wage. Would this, however, be feasible?
An earlier study of the impact of the minimum wage on pricing looked at various research from the United States and concluded that a 10% increase in the minimum wage increased food costs by no more than 4%.
This appears to be promising: increasing the minimum wage may not result in a decrease in actual wages. It’s only one side of the tale, though.
As previously noted, the short-run benefits of higher minimum wages can be totally offset by the negative long-term implications of higher minimum wages: more expenses for businesses, and higher unemployment in the post-Covid-19 period.
Targeted relief for low-income households
Another option is to specifically target relief funding for short-term assistance. The University of Otago’s Ptea Tautoko Student Relief Fund is an example of this, assisting students with rent and food who are enduring financial difficulties as a result of the pandemic. In 2022, I expect a large number of students to apply again.
Such programs might be expanded, with local government agencies collaborating with local companies to identify households in need of immediate assistance. As a short-term solution, I would support it.
While actual inflation and diminishing household spending power will be major issues in 2022 (and possibly 2023), we must remember that New Zealanders’ future well-being will be determined by long-term economic growth.
Many of the same headwinds that we faced prior to Covid-19, such as low productivity growth, demographic challenges (including population ageing), and a lack of investment options, will continue to be present in the years ahead, even if the Reserve Bank is able to keep the rate of price increases under control in the short term.
Who has the world’s greatest inflation rate?
Venezuela has the world’s highest inflation rate, with a rate that has risen past one million percent in recent years. Prices in Venezuela have fluctuated so quickly at times that retailers have ceased posting price tags on items and instead urged consumers to just ask employees how much each item cost that day. Hyperinflation is an economic crisis caused by a government overspending (typically as a result of war, a regime change, or socioeconomic circumstances that reduce funding from tax collection) and issuing massive quantities of additional money to meet its expenses.
Venezuela’s economy used to be the envy of South America, with high per-capita income thanks to the world’s greatest oil reserves. However, the country’s substantial reliance on petroleum revenues made it particularly vulnerable to oil price swings in the 1980s and 1990s. Oil prices fell from $100 per barrel in 2014 to less than $30 per barrel in early 2016, sending the country’s economy into a tailspin from which it has yet to fully recover.
Sudan had the second-highest inflation rate in the world at the start of 2022, at 340.0 percent. Sudanese inflation has soared in recent years, fueled by food, beverages, and an underground market for US money. Inflationary pressures became so severe that protests erupted, leading to President Omar al-ouster Bashir’s in April 2019. Sudan’s transitional authorities are now in charge of reviving an economy that has been ravaged by years of mismanagement.
When did New Zealand have its greatest inflation rate?
Housing and transportation are the main drivers to annual inflation, which is at its highest level since June 1990.
According to Stats NZ, new house prices increased by 16 percent from 2020 to 2021, rent increased by 3.8 percent, and fuel prices increased by 30 percent.
One guy stated, “My monthly wage is not even enough to refuel my car or my cupboards.”
“Sometimes you can’t afford to buy a bottle of milk,” one person explained. “It’s a bit all over the place to be honest.”
“We’re hearing a lot about three key areas: petrol is the biggest one, followed by food, and then rent is a tremendous issue for a lot of people,” says Consumer NZ Chief Executive Jon Duffy.
Wages aren’t rising in tandem with prices. According to the most recent Stats NZ data, 42 percent of Kiwis did not receive a wage increase last year, and if they did, it was below inflation.
“Inflation affects lower-income New Zealanders disproportionately, and that’s a significant challenge for us as a society,” Duffy said.
Interest rates are projected to continuously rise in order to pull prices down, putting homeowners at a disadvantage.
“You’re looking at a mortgage rate in the mid 3s right now, and it’ll be in the mid 4s, mid 5s in the near future,” Kiwibank Chief Economist Jarrod Kerr says.
There is, however, some good news for people who are constructing a home. Later this year, construction prices are likely to drop.
What is the minimum wage in New Zealand?
Now is the time to chat to your accountant, payroll provider, and finance/HR teams if you haven’t already. It’s also a good time to double-check your hiring records, procedures, and systems.
- The starting and training minimum pay will increase from $16.00 to $16.96 per hour.
- All rates include tax and any legal deductions, such as PAYE tax, student loan payback, and child support.
What is a reasonable rate of inflation?
The Federal Reserve has not set a formal inflation target, but policymakers usually consider that a rate of roughly 2% or somewhat less is acceptable.
Participants in the Federal Open Market Committee (FOMC), which includes members of the Board of Governors and presidents of Federal Reserve Banks, make projections for how prices of goods and services purchased by individuals (known as personal consumption expenditures, or PCE) will change over time four times a year. The longer-run inflation projection is the rate of inflation that the FOMC considers is most consistent with stable prices in the longer future. The FOMC can then use monetary policy to help keep inflation at a reasonable level, one that is neither too high nor too low. If inflation is too low, the economy may be at risk of deflation, which indicates that prices and possibly wages are declining on averagea phenomena linked with extremely weak economic conditions. If the economy declines, having at least a minor degree of inflation makes it less likely that the economy will suffer from severe deflation.
The longer-run PCE inflation predictions of FOMC panelists ranged from 1.5 percent to 2.0 percent as of June 22, 2011.