The North Island’s awful summer is going to drive up inflation.
A new report from Treasury says flood-reduced supply, particularly for fresh produce, will add to inflation with the March and June quarters likely to be 0.4 percentage points higher because of January’s flooding and Cyclone Gabrielle.
Consumer prices rose 1.2% across the March quarter, compared to 1.4% in December, setting annual inflation at 6.7%. The annual rate of food price inflation hit 12.1% in March which was the highest rate since 1989.
It had been widely speculated by economists that the severe weather events would contribute to inflation as demand for replacement goods and remedial work pumped cash into the economy.
Treasury also estimates up to $14.5 billion in economic damage from the “large and widespread” weather events after Auckland and Northland were hit by heavy rain and flooding in late January, before Cyclone Gabrielle in early February.
Treasury says significant losses were experienced across households, businesses and infrastructure.
It estimates households took a $2b-to-$3.5b hit, with businesses impacted by a similar amount, while infrastructure losses amounted to more than half of overall damage, for an estimated $9b hit potentially rising to $14.5b.
These Treasury estimates are for “total damage”, where the total assessed damage will end up "rather than a running total of assessments to date". It says it assessed economic output losses, short-term price implications and the extent of damage and destruction of physical assets.
Treasury says the actual repair bill will depend on choices as to whether to replace assets or whether to “build back better”.
It estimates losses from agriculture and horticultural crops are the “dominant driver” of its predicted $400 million to $600m loss of output in the first half of 2023.
"Persistent losses averaging around $100 million per annum are also anticipated in coming years, reflecting the loss of capital assets such as orchards."
In March, fruit industry association New Zealand Apples and Pears released a report which found 47 percent of the Hawke's Bay apple crop had been affected by Cyclone Gabrielle.
The two weather events have also led to massive insurance claims.
The Insurance Council of New Zealand (ICNZ) says it is settling claims worth more than $2.5 billion as a result of the two climate events earlier in the year.
"The value of those two events alone is around 80% of total claims paid by members for all of 2022."
ICNZ chief executive Tim Grafton says the insurance claims is "money the government doesn't have to find".
"There's multiple benefits of insurance, and not just for the insured, but government's as well. We are quick contributors and payers. We have already paid out hundreds of millions of dollars for those two events, and that would far exceed any other monies coming into the affected regions."
Grafton says the January floods and Cyclone Gabrielle are the two largest losses from extreme weather events in New Zealand "by a country mile".
7 Comments
This could easily turn into an annual event. Anyone who is into their gardening can see clear evidence of climate change that started to be noticeable for me last year. Periods of unusual weather during summer that is starting to affect certain plants. Even if we get another storm like this every five years its going to be a nightmare. People need to forget about re-building in low lying areas, this has been a warning of weather to come.
Chatting to a neighbour this evening about the trees in our garden that have died. Drowned, by the ceaseless rains of the last few months. Root Rot. "Same as me!" he said. "I've got a big one that's been here since we moved in 25 years ago, and it's just shrivelled up and died as well"
And if I look down the road, the two of us aren't on our own.
I believe they are underestimating the impact on agriculture especially dairy. Anecdotal stories are banks puling up hard on requests for additional funds. What started as a trickle of requests by farmers to shift to interest only is turning into something more substantial. Not saying the underlying business is struggling just the current and near term cashflows are unsustainable. We have a dairy farm with an expected zero income in June. Never had no cashflow before. We have had to go to a zero spend except wages until September.
It will be interesting to see how the $14.5 billion damage estimate evolves. The lesson from history is that the final cost is always oodles more than first estimated. I recall Treasury's initial estimate of the Canterbury earthquake was around $3 billion; The final cost was about 10 times that. Rapid inflation in the construction sector obviously doesn't help these things.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.