Inflation has risen to 7.3% for the year to June, which is the highest level in 32 years.
And it's also higher than the Reserve Bank and economists were forecasting. As of March inflation had been 6.9%.
The latest figures make it a racing certainty that the RBNZ will hike the Official Cash Rate again by 50 points at its next review on August 17 and will very much firm up expectations that another 50 pointer will follow in October. If that were to be the case it would see the OCR at 3.5% well before the end of the year.
Monday's inflation figures probably dash the hopes of some that mortgage rates may have peaked.
Crucially also, the non-tradeables inflation - domestically generated inflation - was 6.3%, the highest since the series began in 2000 and up from 6.0% in March - and much higher than the 6.0% economists were expecting and the 5.7% the RBNZ was expecting.
What it means is that locally generated inflation is running much hotter than people even thought.
ASB senior economist Mark Smith said the record high annual non-tradable inflation "will be of concern to the RBNZ".
"We think annual CPI inflation has likely peaked, but this is still uncertain. Unless labour market pressures concertedly ease, current high inflation outcomes run the risk of being increasingly entrenched.
"Restrictive OCR settings are required, and we expect a 50bp hike in August and a 3.5% late 2022 OCR peak. OCR cuts beyond then will depend crucially on the labour market and external inflation environment cooling," Smith said.
Statistics New Zealand said the main driver for the 7.3% annual inflation to the June 2022 quarter was the housing and household utilities group, due to rising prices for construction and rentals for housing.
Prices for the construction of new dwellings increased 18% in the June 2022 quarter compared with the June 2021 quarter.
"Supply-chain issues, labour costs, and higher demand have continued to push up the cost of building a new house," Stats NZ general manager Jason Attewell said.
"The 18% annual increase in the June quarter follows an 18% increase in March and a 16% increase in December 2021."
It takes inflation to levels last seen in 1990. The June quarter rise was 1.7%.
Economists had forecast an annual rate in the 7.0% to 7.2% range, while the Reserve Bank had forecast 7.0%, with this to be the peak.
The tradeable inflation rate, which measures goods and services that are influenced by foreign markets, was 8.7% in the year to the June 2022 quarter – the largest annual movement, either up or down, since the series began in June 2000.
The RBNZ is charged with keeping inflation in a 1% to 3%, but it is not forecasting to be able to get inflation back under 3% till late next year. Economists doubt whether it will be able to achieve it even in that timeframe.
The central bank has made killing inflation - and perhaps more pertinently, killing expectations of future inflation - its absolute priority and it has recently hiked the Official Cash Rate to 2.5% with 50 point rises in each of its last three reviews. Another 50 point rise is widely expected at the next review in August.
The RBNZ has forecast the OCR to peak at just under 4% in the middle of next year. Wholesale interest rate market pricing is suggesting the markets currently expect the OCR to go slightly above 4%.
The Government made a pre-emptive strike to fight off criticism on Sunday when it extended the 25c a litre fuel tax cut and half price public transport fares to the end of January 2023.
Inflation has risen rapidly. In March last year the annual rate was just 1.5%. A year ago the RBNZ was forecasting that inflation would be just 1.5% in the June quarter of 2022.
In terms of the 1.7% quarterly increase, Stats NZ said main contributors were:
- Housing and household utilities rose 2.3%, influenced by home ownership (up 4.5%) and actual rentals for housing (up 1.2%).
- Transport rose 2.3%, influenced by private transport supplies and services (up 5.5%) and partly offset by a fall in passenger transport services (down 9.0%).
- Food rose 1.3%, influenced by restaurant meals and ready-to-eat food (up 2.6%) and grocery food (up 1.9%).
In terms of the main annual changes, these were:
- Housing and household utilities increased 9.1%, influenced by home ownership (up 18%) and actual rentals for housing (up 4.3%).
- Transport increased 14%, influenced by private transport supplies and services (up 25%) and purchase of vehicles (up 4.0%).
- Food increased 6.5%, influenced by grocery food (up 7.1%) and restaurant meals and ready-to-eat food (up 5.8%).
- Miscellaneous goods and services increased 5.5% influenced by other miscellaneous services (up 11%) and personal care (up 7.3%).
Consumer prices index
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212 Comments
You would think quite a few are now opting to buy an existing home rather than build new.
Most are just sitting on their hands for now though.
A mistake most will make though unfortunately is to wait until the next surge to even think about buying. Such as costly mistake, yet so common.
This is me now. Need to look at moving, looking at empty four bedders in a formerly trendy part of Auckland, lots of empty supply sitting on the market in the $1.8m 5 bedder space which will provide a lot of weight to push down on prices of what I want if it starts to unwind.
But as things stand, I can't afford the financing costs on current asking prices.
Too true, with a nasty dose of people who fixed at ATL unfixing at 2x or, dare I say it, 3x?
We could see some hand-holding through the initial worst part, but eventually the firestorm would come.
So what to do? Current mortgage at 7% is painful but doable. The question then becomes how much more would you need to actually upsize, if the houses above us crash faster than our current place does.
Sorry I realised that and changed my comment just after you added yours (I just changed my comment back in the spirit of the thread).
Yes that is correct, but it also depends on what percentage you spend on consumer goods. In our case 50% of our income goes into paying down debt, so we only need about a 4% pay rise to stand still.
Fair enough. Just pointing out that not everyone needs a 8%+ pay rise to cover this. Although for those with debt they may end up having to also pay more in interest, depending on when they fixed.
A household with 500k debt just had $36,500 written off the value of it. Some win, some lose, but it seems like the same people win in all scenarios.
Here you go:
https://www.salaries.co.nz/cd/tax-calculator/58836/dollars
$48,165.20 cash in hand
https://www.salaries.co.nz/cd/tax-calculator/63859/dollars
$51,681.30 cash in hand
51681.3 / 48165.2 = 1.073 (7.3% inflation)
63859 / 58836 = 1.085 (8.5% required pay rise)
My comment was more aimed at the government who seems to feel quite happy offering essential workers and state sector employers 2% or even 0% pay increases, all the while it does exactly what you describe: frontload more snark onto private enterprise about how paying people enough to make ends meet should be considered an existential and moral issue.
I would like them to pick one.
"True but right now it feels like employers are being asked to pick up the tab for everyone else's mistakes" not really, there are worse collateral damages. But yeah, times are difficult.
"tell me again why I should stay in business and keep employing people".
So, short answer, you don't.
A better option would be (for you) to improve productivity (make more money by spending less money)
Don't take it as an offence, I am not trying to push you.
But the very synthetic point is that: you fight inflation trying to make things cost less.
By depressing demand (reducing the amount of money in circulation)
By push for productivity (reducing the amount of money in circulation)
But no, employers are not a charity, if you can't keep up with the costs better to close (which also increase unemployment, which at this stage is probably considered a good side effect)
The only real way to fight Inflation is to raise interest rates above CPI. But that will cause a Fire Sale for property owners, mostly the investors, or should I say the Vested Interest Brigade ? Can I get an Amen ?
Once the interest rates go to 7% there will be nothing left but Smoke and Ashes. Property Brokers will be remembered for their Smoke and Mirrors.
Should have sold last year. Ain't Nobody Got Time For That Now.
In Remembrance of the Prophet. ( also a favourite of mine )
https://www.youtube.com/watch?v=bFEoMO0pc7k
Define peaked. Even if it drops to 6% now and continues for another 6 months that's still not past the peak. Until it rapidly drops to below 3% the situation is getting exponentially harder the longer it stays outside the band. The effects are compounding which is like a snowball.
Nurses and allied workers have to negotiate long and hard to get fairer wages; care workers and general practices have been give a laughable 3% increase this year.
Meanwhile, Robertson found enough within a "tight" budget to fund big welfare increases, with some beneficiaries getting an extra 18% in weekly payments.
Is that the end goal for all hardworking Kiwis in this country: join the breadline and vote Labour to keep the bread coming?
Or they could start by gradually removing the public healthcare coverage provided to tens of thousands of temporary workers. And yes, anyone with continuous working rights of 2 years or more qualifies for free public healthcare in NZ.
Sounds cruel but given what little the government is doing to help the desperately struggling service, this move could take some pressure off at this critical moment.
Not sure about the “free” part. If you’re Engineer on a 120k/year paycheck you pay:
-$32.2k in income tax & acc
-$5k in GST (assuming you spent 3k/m on living)
-$2-4k in council rates depending where you live
- $1.4k for road/petrol taxes assuming 14k km driving and $1 going to the gov for every litter.
That brings us to roughly $40-42,000 of taxes per year. Considering that full medical (outbound & hospitalisation) cover in Singapore would cost you $ 1,500 to 4,000 with no cost subsided by the government, it looks like temporary workers pay for themselves.
What will happen when such people get sick? NZ hospitals will reject them? let them perish at the hospital doors if they need life saving care? Do you really see this happening?
NZ has a big number of old and frail individuals AND a disproportional number of obese people (with a myriad of serious heath issues) who clog up the limited resources of the system. By definition, they are always the priority (as they are most vulnerable almost always) for the health system. It is cost of care of this group that is the driving force behind a struggling healthy system. Talking about others is just a diversion at a macro level.
RBNZ announcement of a repurchase facility this morning shows they now fear the financial system could freeze with banks balance sheets becoming high risk as the RBNZ has to unleash the inflation bazooka in the coming months within a recession. We have front row seats to a credit crisis.
https://www.scoop.co.nz/stories/BU2207/S00254/reserve-bank-announces-ne…
Looks like the RBNZ is going to join the REPO market. That way if the banks are unwilling to lend to each other because they fear one could fail they can lend to RBNZ.
Sometimes I wish we could jump in that Delorian, to go back in time, to just yell at Yellen.. Moral Hazard !
We should have let that bushfire burn baby.
All the repackaging and consolidation of Sh%te ARM debt caused this freakery in the first place. That and first class K Street tomfoolery.
Question is, my most excellant Interesty friends. What have we learnt?
Kiwi Tim and lowercase capitalist are both building treasures in Heaven. Special prayers for you both.
7% interest rates this year, Guaranteed !
The Prophet has asked me in a dream to pass this onto you both.
The property market is on fire. It is burning to the ground.
Ho hum. The RBNZ get it wrong again. An organization whose sole responsibility is looking into the future and setting policy for what lies ahead... They have been getting it wrong for so long now, they have become a joke. We still have the FFLP Giving our money to foreign banks for free. It is unbelievable just how non compus-mentus the political classes in NZ are.
Hardly a surprise. Despite paying up more for fuel, energy, materials, and food, who has been richer? Virtually nobody. Yet there is all this uproar about peaking inflation, if you stop to think about it, no one wants inflation to come off the boil in a hurry. Businesses want just a little more wiggle room to pass on higher costs, employees want just a little more in wages, importers wish just a little more in terms of trade, and Govt wants just a little more in tax receipts… If everyone wants just a little more before it cools off, you can bet its not going to cool off soon, absent a self-inflicted harm or ratcheting up our collective stupidity against an oppressor
This is why inflation is pretty difficult to tame, it's the inflation expectation after the supply pushed inflation that hard to be dealt with. So when Orr made points that he would rather deal with inflation than a recession before, I seriously doubt he meant what he said and whether he had dealt with inflation before. Inflation hadn't happened for a long time doesn't mean it would not happen. I personally think he was pretty naive back then to say something like that.
"supply pushed inflation". Wrong. It is the overly loose monetary policy of the last 5 years that has caused this. The RBNZ was lowering interest rates in 2016 on no good basis other than wanting to "boost exports". Despite us being a "rockstar economy" and exports not being a part of there mandate.
20% and 20 years more or less.
https://www.macrotrends.net/countries/NZL/new-zealand/inflation-rate-cpi
We must have at least 75 bps hike at each of the next two OCR reviews, and the OCR peak next year must be at least 5%. Any less then that, and there is no hope we will be able to tame inflation, especially the domestic generated component which is rapidly getting out of control.
Lose two games in a row against a better team: Firing line.
Inaccurately predict the two most significant economic events in recent times: Good to go!
The face when we as a nation scrutinize a sports coach more than the failing governor of monetary policy: Priceless!
We made a grave mistake jeering and having the prophet banned from here, who cried from the rooftops in every comment section about 7% interest rates. Turns out they were the only one who saw this all coming, lest even the RBNZ didn't dare call a 7. I'm sorry to whoever you are, that I didn't believe you.
For the rest of us, bad news for borrowers, bad news for savers (who will see their fixed term deposits eroded at current rates), bad news for employees (especially if you work for the Crown), bad news for businesses, and definitely bad news for the government. The opposition is probably the only ones happy today.
Inflation is potentially catastrophic for everybody. Yes it will finally kill the housing Ponzi (as Orr will be forced to tighten monetary conditions until this happens, let's be honest about it - it is way too late for a softer approach now), but it will affect everybody in the end. The RBNZ have dropped the ball, big time, and as I have been predicting for almost 3 years now the NZ economy will have to pay the price for the stupidity, incompetence and shortsightedness of Orr and accomplices at the RBNZ, guilty of enforcing a reckless, un-necessary, ultra-loose monetary policy.
Kiwijay - The Prophet would say : Your Sins Are Forgiven, his Father would expect nothing less, and he is the God of forgiveness.
It can be hard to see what is coming, especially when it seems outrageous. And that is why the Prophet only gave a little bit of information, the rest was way to much for people to handle.
When the first mainstream bank starts to sell 7% interest rates I have been instructed to release the next Prophecy for the Prophet. It is not a number. It is something more uncomfortable to come to terms with.
Crucially also, the non-tradeables inflation - domestically generated inflation - was 6.3%, up from 6.0% in March and much higher than the 6.0% economists were expecting and the 5.7% the RBNZ was expecting.
What it means is that locally generated inflation is running much hotter than people even thought.
Time for Grant Robertson to stop the political spin, when it comes to explaining why we are in this mess
Time for Grant Robertson to stop the political spin, when it comes to explaining why we are in this mess
He's likely to tell you he proactively acted (y'day's annoucement). Vote for clowns, you get clowns. That being said, the alternative is pretty much the same as Robbo.
Gran Robertson..."inflation is transitory". Biggest mistake the last 50 years.
More interest rate hikes coming. Smug boomers retiring. Nil immigration and who would want to come and be enslaved to the property owning community. Much needed youth future tax payers will continue to evacuate themselves. You couldn't make this stuff up.
Perfect storm....downwards.
It truly feels like the Eve of Destruction. And we should have done better. More fool us.
https://www.youtube.com/watch?v=SDkcbipclDQ
Considering that the non-tradeable, domestic-generated inflation component is also getting out of control, there is no reason for not hiking by 75 bps at each of the next two OCR reviews. Inflation expectations are also worrying and a proof that inflation is getting entrenched.
The OCR must be at least at 4% by end of this year, and there is no way the peak will stop at 4% - the RBNZ will have to raise the OCR next year to a peak close to 5%, if they want to keep inflation under control. And they will be forced to do so.
Mortgage rates well over 7% next year are a very strong possibility. And they will stay high for a very long time to come, at least 3-4 years, as inflation takes much harder work and longer time than many would hope. The era of cheap money is finally and positively finished, as all major central banks will be very keen on not repeating this mistake once the current inflation issue is finally put under some kind of control.
The inflation is bad but….most people can do things to mitigate it. Of course some of those things, such as eating out less or less takeaways, won’t help the economy.
something we have doing for a while is eating less red meat. Good for the wallet and good for the health.
"NZ is not Japan where you can take the train to the beach" - funny, I did exactly that in Japan, and not a bad beach with absolutely no one else there (maybe scared of Tsunami).
From my house I have direct buses to multiple beaches, though none of them are great so I would drive to a further one.
Most people in NZ drive to the local dairy, supermarket, etc. I walk most trips that are less than 30 mins these days. Sure if I am doing a big shop I wouldn't walk.
Most NZ commutes are under 6km, perfectly cyclable.
Good work. But it doesn't work for everyone and here's why:
https://www.theguardian.com/books/2020/aug/05/spoon-fed-by-tim-spector-…
Interesting, I agree with what he says in that we are all individuals and process foods differently. The combination of nutrients required as fuel for each body varies.
Personally, more meat is better for me. One thing I do make sure is that the ingredient list of everything I buy contains only 1 thing. If it contains more than 1 ingredient I don't buy it.
One day people will learn they can not eat money, and more of it won't help them.
It is difficult to see this from within a constructed culture where money is a substitute for anything and can dissolve every problem. From here it's also difficult to see that money can't actually solve every problem either.
So does the next pay review go like this: "I need 7.3% just to stay where I am, and I need another 2% because I have more experience than last year, and I need another 5% because I am in high demand, and I need another 10% to catch up on all those years without pay rises, ..."
New home building will fall off a cliff soon. Housing consents dont equal actual starts and why would you build when there are so many issues with supply chain and costs. Housing will go down for a few years but it wont get cheaper to build and the cost of carrying the debt to build at the floating rate is high and going higher (relative to what we are used to) - I sense a risk of a 75bp hike...
The non-tradable CPI increase this quarter is almost entirely driven by:
- Price of getting a house built
- Restaurant meals and ready-to-eat food
- Rent
- Private transport supplies and services
- Household energy
Hiking the OCR might kill demand for restaurants and takeaways - but we will see closures well before we see lower prices. Maybe increasing OCR will reduce the cost of building a home (nope). Will it reduce rent (never has before). Will it make electricity cheaper (very funny)?
True. Wiggling the OCR around makes next to no difference to retail prices (either way). Turning the OCR down inflates asset values and increases the disposable income and confidence of home owners. This leads to a debt fueled boom (and more jobs) until inflated asset prices and stark inequalities suck every ounce of life out of the country. Turning OCR up deflates asset prices and decreases disposable income and consumer confidence - leading to a sharp slowdown in spending (which pushes unemployment up). They should just fix OCR - and let our currency float.
The main effect of the OCR is on house prices and thus on the wider economy. Consumer price inflation cannot directly be targeted via OCR. The high inflation we are now facing has been caused by money printing by the government and, as a secondary effect, by many years of a housing price bubble. The housing price bubble has been caused by ultra-low OCR, but unwinding it now via steep and successive OCR hikes is like trying to deflate a balloon with a needle. The right thing do to, unless economic collapse is their plan, would have been one OCR hike. Remember house prices were already coming down when they began hiking the OCR consecutively.
What they are doing now is causing economic collapse, via steep, consecutive OCR hikes. This is either stupid or planned that way.
- Maybe increasing OCR will reduce the cost of building a home (nope).
Wrong . Increasing the OCR lifts NZD and decreases the cost of imported materials and tools in NZD . Increasing the OCR will also kill some to the demand for new housing , reducing bargaining power of the builders .
- Will it make electricity cheaper (very funny)?
Yes it will - through demand destruction.
Throw the textbook away - look at actual data for TWI vs OCR, or the input costs of housing developers, or the structure and financial incentives in the energy sector. Only the dumbest of economists think that markets can realistically be modelled using a 2-dimensional curve.
The September 21 quarter is dropping out, it was 2.2%
7.3 - 2.2 = 5.1% with static prices from current quarter.
https://www.stats.govt.nz/news/annual-inflation-at-7-3-percent-32-year-…
If Sep 2022 prices are exactly the same as Jun 22, CPI next quarter will be 5%. Add in the 4% rent increase that is already locked in and you are at 5.5% already. The price of some things are coming down though - in fact nearly half the level 2 CPI components were basically static or decreasing this quarter.
No Excuses and room for manipulation with this data........RBNZ should realize that need a shock to get the desired result and missed an opportunity by raising 0.75% if not 1% instead of raising 0.5% in every meeting.
Have they not heard of shock treatment.
No experts can twist or manipulate but will not be surprised if to kick the can, come up with theory that Inflation has peaked .........as no one can prove otherwise ..just like everyone knew (Almost everyone) that Transitary Inflation Theory is bullshit but reserve Bank governors were able to use and manipulate for years
https://www.news.com.au/finance/money/costs/damning-detail-in-whats-dri…
Damning detail in what’s driving rising prices in Australia
What is actually driving inflation in Australia? New research has revealed a shocking finding.
Excerpts;
Rising prices in Australia are actually driving corporations’ profits to record highs amid a cost-of-living crisis, damning new research has found.
The Australia Institute released the shocking findings in a report on Monday, saying that it is actually the corporate sector that needs to tighten its belt to control inflation, not workers.
“While companies are arguing that they have ‘no choice’ but to increase their prices, the fact that they are making record and rising profits is proof of how many choices they really have,” Dr Denniss said.
“It’s a shortage of competition, not a shortage of skilled labour, that is driving up the cost of living in Australia.
First time in the Auckland CBD for a couple of weeks. Gee, it’s dying. More closed down shops, more rough looking characters. Who knows what it will be like in 3 months time. It’s pretty sad.
Commercial Bay is still nice and bright, but looks may be deceiving. Shops and food court seemed pretty quiet.
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