“Excellent news…” one economist whispered to me during Statistic New Zealand’s consumer price index lock-up on Wednesday.
“...bog roll is getting cheaper.”
They were correct. Prices for 12 rolls of toilet paper had fallen 9.1% between the September and December quarters and was down 11% from its peak in June 2023.
It's not a bad illustration of one reason headline inflation has fallen so fast.
Toilet paper prices spiked in mid-2021 as the covid pandemic disrupted the supply chains which bring in the raw materials used to manufacture the product.
Shipping costs increased, because there were fewer ships, and wood pulp commodity prices shot higher because less was being produced and exported.
Consumers in New Zealand, fearing they might get caught out by the toilet paper shortage, were buying more than usual. Conditions were perfect for higher prices.
Now all those trends have unwound. Households have become more cost conscious and producers have been able to cut prices because shipping and pulp costs have fallen.
One person familiar with the industry said supply chains had finally returned to normal and large amounts of raw materials were arriving in New Zealand from Southeast Asia.
Immaculate disinflation
New Zealand’s consumer price index is heavily weighted towards goods, which make up about 62% of the basket. In Australia that number is 56% and just 38% in the United States.
Since so many of our goods are imported, the inflation rate has been falling.
This has been driven by weak inflation pressure in China, normalisation in freight costs, and falling commodity prices.
Nic Guesnon, an economist at UBS’ global research and evidence lab, said he expects inflation to drop to 2.2% by the last quarter of 2024.
“We are feeling more confident that goods prices will remain weak. However, services prices are also likely to start slowing if the labour market loosens rapidly as we expect”.
The goods component in December’s quarterly consumer price data was up just 0.1%, while the services component was up 1.1%.
Marathon mile
Bevan Graham, an economist at Salt Funds, said it was “increasingly problematic sticky” price pressure in core services that would make inflation persistent.
“Global inflation has peaked, but the last mile to target will, like running a marathon, be the most arduous,” he wrote in a recent 2024 outlook report.
It is the sticky services inflation that the Reserve Bank has been targeting with tight monetary policy and the part that could require weakness in the labour market to achieve.
While goods prices have largely sorted themselves out, wage growth has embedded itself in local services and needs monetary intervention to cool.
This was visible in the December quarter. Rising rents (a sort of service) was the single largest contributor to the headline number and was almost perfectly offset by falling food prices (goods).
Domestic accommodation services contributed about the same amount to quarterly inflation as the purchase of second-hand cars detracted.
Generally, goods prices are settling down while inflation in services is sticking around.
Early next week, RBNZ chief economist Paul Conway will give a speech that will touch on the economic data that has been released since the November Monetary Policy Statement.
It is likely that he will discuss the difficulty of getting services inflation under control and reaffirm the central bank’s plan to hold the Official Cash Rate at 5.50% until 2025.
The market has been coming around to this point of view. Traders were pricing in a full 25 basis cut in May 2025 a month ago, but had pushed it out until July as of Friday morning.
93 Comments
An economist with a sense of humour.... a rare find
Also let's face it, accommodation ownership and rent costs in NZ have been pricey for many long years. Commenters here on interest.co have insightfully warned of this scenario of high cost of living that starts with the high costs of land and buildings. I think its almost too late now to change but until politicians, including local council mini Hitlers get it through their thick skulls that they have to focus hard on providing the right environment, then we are stuck with ever increasing costs. That's my 2 cents opinion
Good article Dan
I think its almost too late now to change but until politicians, including local council mini Hitlers get it through their thick skulls that they have to focus hard on providing the right environment, then we are stuck with ever increasing costs.
It's not that they don't know this.
It's that there's a whole system and mechanism of state and regional authority that's financially dependent on it. They have to tell us what to do, how to do it, whilst charging handsomely for it.
There's now multiple layers of bureaucracy and costs imposed under the premise of knowing what's best for us, while actually delivering less than ever.
Once again completely overlooking the fact that older nimbys vote in the councilors that promise a) low or no rate rises (when infrastructure investment demand much more) and b) the preservation of their 'leafy suburbs', empty roads, etc. that they had back in the 70s.
But sure. Blame everyone else except the selfish voters and the charlatan councilors peddling a 'I can fix it without raising rates' platform that they vote for. You're part of the problem, Pa1nter.
It's a discussion forum, not a longform thesis highlighting each and every component of an issue. At no point do I ignore the fact that our problems aren't being addressed due to voter self interest. There's a lot going on dude, all leading us down a not so chipper path.
But I can see with great clarity the funnel we're being pushed down, by both our public and private institutions, that has the individual with a lot less, under the ruse of being provided more.
Great convo Chris, just keep playing the man, keep your eye off the ball.
"Once again completely overlooking the fact that older nimbys vote in the councilors that promise a) low or no rate rises (when infrastructure investment demand much more) and b) the preservation of their 'leafy suburbs', empty roads, etc. that they had back in the 70s."
Not true in recent decades. The "root cause" is allowing any other people than ratepayers to vote. In Wgtns case that means repeated elections of Green party agendas by a bunch of students with no personal investment or commitment to the city focused on feelz & nice to haves.
Not letting off the hook the ratepayers who don't vote either
Sadly...have to agree with you. When Wellington elects a council with a common-sense agenda, we may turn things around in the next decade. Otherwise take a ride/drive down Cambridge Terrace and asl yourself - do we really need cycleways 100% wider than Europe's best?
Disgusting attitude and I note that a candidate in the Wellington by-election is also campaigning on the foul idea of restricting voting to "ratepayers", in this case property owners.
You and he ought to remember that that rates on rental properties are paid directly out of rental revenue, not from landlords personal income. So tenants, including students, effectively are paying rates - they just flow via the rental business for the sake of administrative simplicity. In sone places overseas rates are often paid directly by the tenants, an approach which delivers exactly the same outcome whilst making it more obvious who is actually paying.
The fact that most landlords think they themselves pay the rates - when even a brief reflection should tell them that the money hasn't come from their personal income - is just typical of the entitled mentality that develops in rentier economies. Adam Smith had it right:
"the indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind"
Root cause analysis doesn't mandate a single root cause. Go look it up again.
Put it this way, we can rezone Auckland to allow cinder block towers everywhere, and screw those in Epsom or Remuera, but we are still faced with disproportionate levels of authoritarian control that dictate our housing remain unaffordable.
We used to have a rulebook that was a damn sight more practical, and utilitarian.
Now, we have a never ending spiral of enforced regulation to combat or counter any remotely possible eventuality.
Kid drowns in pool? Regulate, fence, and council check every single pool annually.
Dog bites person? Every dog's microchipped thanks.
Dude injures or kills themselves at work? Why, let's have mandated daily safety briefings, cones everywhere, site safe passports, you name it.
The knee jerk is to read the above and say "oh, so you're ok with babies drowning in pools are ya". Which of course I'm not, but we now apply blanket obedience to almost any eventuality, no matter how obscure. That's a super expensive way to create an illusion of safety and security.
No one votes for any of this stuff, hence, it's more authoritarian than democratic.
Reasons to be an economist:
* Economists can supply it on demand.
* You can talk about money without every having to make any
* You get to say "trickle down" with a straight face.
* When you are in the dole queue, at least you will know why you are there.
* When you get drunk, you can tell everyone that you are just researching the law of diminishing marginal utility.
* When you call 0900-LUV-ECON and get Kandi Keynes, you will have something to talk about.
My 2 cents is that the cost of housing is responsible for a great deal of harm to the economy in diverting a greater and greater share of savings and income.
And the costs involved are passed on and multiplied.
That is unless you consider real estate agents, banks, landlords, and the house construction sector is sufficient for an economy.
And the cost of leasing commercial premises a major cost for business. Especially small independant ones.
i know of several one man bands who have thrown it in , or now work from home , because of landlords increasing leases dramatically. no protection for them , the bigger landlords can outlawyer them .
And LL don't have mortgages?
FYI: Almost all do.
And the RBNZ hasn't raised the OCR, thereby raising LL costs?
FYI: They have.
And builders don't use loans to build with and cost of finance hasn't skyrocketed (thanks the RBNZ's raising of the OCR)?
And builders don't need pre-sales to get finance and there are few because few can afford the finance to buy
But it's all Labour's fault?
The only way we can get affordable rents is with ultra low interest rates, tax free status on residential housing, no health and safety requirements such as insulation and smoke alarms, and billions in accommodation supplements? Or is that what got us in this mess in the first place?
The initial cost of the property is one of the largest influencers on the rent.
Adding additional costs to landlords, also increases rents.
To make rents cheaper, you need to generate new houses for less, and keep a lid on compliance costs to landlords. If you don't do that, rents get more expensive. And hey, that's exactly what's occured.
What about the cost of the land? Surely that is increased by the tax advantages over other investments?
And the cost of servicing the debt on the initial purchase? Surely that affects demand and the initial purchase price. If interest rates were 20%, house prices would be a lot lower.
The cost of the land is always going to increase when you have never ending demand increase of a finite supply.
Part of an approach to cheaper new housing generation has to address that supply side issue.
Debt is a factor to pricing, but there's also limits to how cheap you can supply.
If finance on new cars was 300% for instance, you're still not getting a new Corolla for 5 grand. You just get no car, or a crappy old beater - although the price of those would also rise as you have less new cars entering the market.
Yup. The land always goes up in value.
What's on the land? Nah. Seldom produces anything but a negative rate of return.
About the only exception (that doesn't stand the test of time) is high value land in exceptional locations where massive amounts of money are spent on developing or maintaining 'trophy houses'.
The initial cost becomes irrelevant when the replacement cost keeps rising and rising. The original cost of a 3 bed 1 bath double garage home built in the 1970s does not influence the current market value and rental value.
Part of the cost of housing development is the councils charges, the gst and the private profit margins, all of these need to deflate.
for me to carve off 2H I need to plant 5H in native bush..... I could carve that up into 3,5 x 2H but no they only want 1, hence rural is holding value more then central and right on margin its mega bucks, councils are stopping cheap land !!!!!! great if you own it already....
Hamilton council lacks money to pay its bills and raised the rates by over 25 percent. The ratepayers effectively get no say on the monopolistic pricing
The Hamilton council wants to shift a bus stop from where its always been, where it works, because of a few narkey complaints. The budget is 700k incl f**ken heaps for traffic mgmt (how did you guess). This is even worse costings than its neighbour council of Auckland spending 500k for each of multiple new ped crossings where there already was a crossing.
https://www.waikatotimes.co.nz/nz-news/350159381/inside-costs-three-qua…
You would think over time that they would get better at it and do it cheaper. The RBNZ would be appeased and not have to point its gnarly finger at Joe Public for inflation
There is talk of a 25% increase but I believe it hasn't been voted on yet.
There was a safety upgrade that was supposed to go ahead on Horsham Downs Road in Hamilton but that has now been canceled as Waka whatever you call it now won't supply the funding. The 3 headed Taniwha ain't mucking around.
While goods prices have largely sorted themselves out, wage growth has embedded itself in local services and needs monetary intervention to cool.
Citation needed! What evidence is there for this statement? Wages will adjust to the new price level (and they are, thankfully). But the circumstances for a wage / price spiral simply do not exist.
Phillips wrote about these exact circumstances in his 1958 paper, which was twisted by economists to create the Phillips Curve. Phillips was clear that an import price shock inflation episode would lead to an increase in wages, which would push on service prices until import prices stabilised or dropped.
https://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.1958.tb00003.x
One might also ask what is still putting upwards pressure on wages? Is it employers bidding up the price of labour? Nope. It is people / unions pushing for pay rises because workers can't afford their mortgage / rent / insurance etc. It is quite possible that higher interest rates put a net positive pressure on wages. A wage / housing cost spiral if you will.
In other countries, govts put temporary freezes on rents, and dropped duties on petrol etc to shield consumers from temporary price spikes, thus preventing inevitable price contagion spilling into wages. The Japanese central bank (interest rates unchanged for many years) has been telling employers off for not increasing wages enough!
"But the circumstances for a wage / price spiral simply do not exist."
I disagree in the case of monopolistic local authorities services, the evidence is clear that their cost plus mindset in the context of complete market price control has accomodated excessive wage & salary growth -coupled with headcount increases. Not forgetting the monetary supply increase from the last 3 years RBNZ policies.
Many of our core services' ministries now have their own building standards and oversight. Because you know, the national and regional ones just weren't quite enough.
And they've been quietly ratcheting up their level of compliance and standards. Much of which, is downright tomfoolery.
Here, have less for more.
You can call whatever you want, but I'm also not going to dox myself.
It's also the 3rd time in almost as many years the facility has been tested. Have to have new initiatives up at the top level to justify themselves.
Not that it's of any use, because you need to dismiss anything I say out of hand, but a few months ago I got rubbished on here by claiming the state was expending around $300k making state houses healthy. I was wrong, but by under estimation:
Housing agency Kāinga Ora will spend $323 million to renovate 820 homes this year, an average of $393,902 per home.
https://businessdesk.co.nz/article/property/kainga-ora-budgets-retrofit….
These refurbs are about $120-$150k's worth of work, if you were to commission them on your own property privately. If the states doing it, the method of operation ends up 3x the price.
But we want people to be healthy in their homes, right?
So it's a facility of many individual buildings, with ages varying from mid 1900s to 18 months. They'll check each building, irrespective of it's age and construction, because they can be paid to.
The building in question is "new additional block". The facility is none of your business.
Ah. I see the building is now a 'facility'.
And many parts are way older than '18 months'.
Dating back to 1900s even.
So the original snide, nasty b.s. has now become something quite different.
Very, very different indeed.
And a situation far more complex than you likely understand.
Thus, your original statement, "Last week I got to witness 2 government paid consultants do an asbestos check in a facility, on a building that's about 18 months old", has been shown to more misleading, pompous pontificating.
Name the building and facility. You won't. Why? Because you've been grandstanding again.
Making things up to appear wise and knowledgeable while bad mouthing skilled, honest people with real jobs to do.
Looking for 'likes' and harvesting them using dishonest innuendo?
Shame on you.
Sorry. I won't stop standing up for people who are expressly forbidden by their employers from posting on social media.
Quite frankly, I am sick and tired at the cheap shots against Council employees. It serves no purpose except making the poster feel superior and reinforces cognitive biases among those that feel the same but have no actual evidence to justify their views. (Instead, they rely on lies and misinformation while treating them as fact.) Posts that create or support a 'mob mentality' are heinous and nasty. Calling out such posts is necessary and the human thing to do.
Councils are responsible for areas of our existence that no others are. And the vast majority have little or no understanding of the issues involved. And yet so many appear to be experts and feel they have the right to abuse both the process and the employees doing jobs that most people simply don't understand. And worse, these ignoramuses make no attempt to understand them as it is enough to appeal to the ignorance of the mob.
Taking a resource consent as an example, it is very easy for posters and the media, to present two resource consent applications as being the same. Whereas in fact they are as similar as chalk and cheese. The same goes for compliance monitoring and safety assessments. With a selective use of the facts, you can paint any picture. But to construct a heavily biased pictured, either through outright ignorance or intentional omission, is nothing less than dishonest.
Too many posts are becoming examples of the Dunning-Kruger effect. And I'm reminded that some posters who present themselves as being experts on just about everything by using sweeping generalizations, popular wisdom, unspecific language and stereotypes while delivering them in the most pompous way possible should take note of the old adage, "It is better to keep one's mouth shut and be thought a fool than to open one's mouth and remove all doubts."
A classic example of the crap that Council's have to wade through. Rich, privileged people driving up our rates bills. And this is all because council are hopeless, right? Nothing to do with selfishness?
Everyone gets project interruptions from time to time. Suck it up.
https://www.nzherald.co.nz/business/herne-bay-residents-oppose-salisbur…
Just between you and me, I suspect Pa1nter is some moron's attempt at an A.I. 'postbot'.
A 'postbot' is pointed at a forum and instructed to look up ChatGPT (or the like) for an answer that always supports a view contrary to what is posted (to generate page views), or to support the post bot's owner's point of view. The owner points them at a forum and lets the postbot 'represent' their worldview.
The A.I. creates posts that include sweeping generalizations and 'popular wisdom' - which are often folksie - but also pompous and superior. The owner of the postbot knows it is getting 'value for money' when the postbot's replies get more 'likes' than counter posters.
People used to get paid to be a 'postbot'. But A.I. is now taking those jobs. ;-)
Jfoe our local inflation was demand driven. We got out of Covid, had some extra cash we saved up, and wanted to go to restaurants, cafes, dentists, holidays, etc. We wanted to upgrade the kitchen and add a work from home office. Almost every business in the country was struggling with the demand and had a help wanted sign outside. And on top of that we had storm induced food inflation. The perfect storm you could say.
High interest rates have killed off that demand as expected. Price, wage, and rent freezes would have been a much worse solution.
Jfoe our local inflation was demand driven
Mostly supply driven. Did you forget the 2-3 years much of our workforce was either stuck at home, or sick?
People also went a little spendy crazy, but right from April 2020 there was no way our internal industry could've maintained even 2019 levels of demand.
The labour supply was mostly the same, although yes some of them were at home isolating and some had retired. But the demand was pent up. I certainly indulged in services a lot more than usual. Either way, the solution is the same, reduce demand, the RBNZ can’t increase supply
Nor do any of the health and safety policies and employment laws we impose on our own internal economy.
That way we can have maternity leave, safety cones everywhere, a months worth of holiday a year, and $6 t shirts that smell of some ethnic orphan's tears.
Hurrah and huzzah!
Most TP made in Asia probably contains a fair bit of recycled materials , probably partly sourced from here. I was surprised when i came back from England that photocopy type paper was not recycled here, yet lowly newspaper was. Now there is a company making TP from recycled photocopy paper , but i think they only use new offcuts etc , not collecting used material. cotton etc would be recycled in Asia too.
Thanks, Peter M. You are clearly more knowledgeable in this area than I am. It was a long, long while ago that I was involved with paper production in NZ. Just out of interest (my greenie wife wants to know) who makes Pak'n'Save's non-branded TP? Do you know, or would you have an educated guess, as to the composition? Like many things at Pak'n'Save who actually makes their products is hidden behind intermediaries.
Apple pick ... toilet paper...wow.... My fingers are crossed we dont end up with more bad weather events in the year ahead because they will wreak havoc on food prices and the economy in general... maybe toilet paper will further decrease in price if people dont get enough to eat for their dollar (decline in demand...lol)... In short im reasonably certain the price of toilet paper is not the gold standard of measuring inflation but I guess some economists will always ponder its value whilst on the throne . Not sure global shipping prices are falling either with Red sea problems (+5% drewry?) ... Im not feeling the decrease in inflation as markedly as I should I guess....and that keeps me very cautious...... 12.5% OCR
Most toilet paper consumed in NZ is made in NZ.
What isn't is the machinery and major servicing, and many non-wood raw materials that go into its manufacturer. Further, the supply is all on a 'just-in-time' basis. And capacity, given the consumption remains nearly constant, is also 'just enough' with little stockpiling or warehousing.
Because it's an absolute necessity to many (who either haven't considered alternatives or won't use them) they'll pay more to ensure they have it and won't blink at a 100% increase in price.
It's a fascinating area and many great economics papers have been produced about it. (And if you're after a good laugh while still learning heaps, there are even a few excellent tongue'in'cheek papers that take the piss while explaining the economics involved exceptionally well.)
Touched base with an economist friend ensconced in academia on this subject, i.e. TP-nomics. Their insights were quite enlightening.
One issue they're trying to understand is why in some economies the price of TP returned to normal quite quickly following the great (but non-existent) TP shortage during covid. Whereas in other countries the price stayed above pre-covid prices for a long, long time. One of those places being NZ. A very few countries had real issues in production. But in most cases it appears the producers simply held the prices higher because they could. Markets, like ours, with fewer producers could hold the prices higher, for longer. And they did. Pure greed-flation? Given the inelastic demand curve in many countries, including NZ, it is pretty hard to explain it away as anything else.
I asked them if they could conceive of a solution to TP greed-flation. They quipped that governments could nationalize the production of such a necessity but quickly pointed out that many governments have been known treat prices of necessities as simply another way to collect tax. Well, at least governments have to spend tax for the benefit of all, well most, of us. Past owners of toilet paper production in NZ simply bought massive luxury yachts for themselves.
I'm not up to date with who owns NZ's TP production. But if it, like much of NZ's production capability, has been sold to a multi-national we can expect that a faceless corporation managed from overseas will pad their profits at the expense of Kiwis without giving it a single thought.
Correct. The Kawerau toilet - and tissue paper mill is owned by Essity which is based in Sweden. There was another toilet and tissue converting mill in South Auckland, Australia owned, which imported the paper straight from their Australian tissue mill but ceaded operations. Not sure where the Quilton comes from nowadays. Third one is Paseo which also has only converting operations in NZ. They are owned by Indonesian papermaker giant APRIL Industries.
I notice no one has even mentioned the number one biggest service industry in the country that also takes the largest profits and dividends. Notably their staff struggle with and wage bargaining despite their incredible profit per staff member. It's almost like they are sacrosanct due to their incredible generosity in handing out money to buy houses, so much so I won't even mention them by name for fear of reprisal.
This is true...6-14% rent rises for some folk....industry is good at downplaying and juggling data ...but if folk think inflation is contained ...they are clearly in the upper income brackets only.
Northland had the biggest increase, up 14.9%...Marlborough and Auckland followed, with median weekly rents climbing 14% to $570 and 11.7% Rents in Taranaki, Bay of Plenty and Canterbury were up 11.1%, 10.2% and 10% to $600, $650, and $550. Wellington rents were up 6.7% (stuff 12.10.23) Notice how poor Northlands rise is high and the seat of power Wellywood is low maybe politicians like cheap rent close to work.... What makes a rental worth 14% more in 1 year?....contained inflation ?...lol
Its almost criminal (im being kind) some of what is going on....largely because the high costs are crippling folk from saving a nest egg to break into RE... Industry just wants to keep rolling with the house price double every 7-10 years....but its no longer sustainable for the average consumer and is toxic to larger society.
Slightly off topic however if you thought that the way NZ councils calculate rates is bad
https://www.bbc.com/news/uk-politics-68098173
"...a homeowner in Hartlepool living in a house worth £150,000 is paying more than £200 a year more in council tax than someone in Westminster in a property worth £8m."
Yep ratepayers have had a mild run in NZ, but that could be changing slightly...however it is not where it needs to be ...if it was folk wouldnt be in a hurry to buy 5 houses...theres always been distortion ... and the public at large have soaked up the spillage .
Long term trends do appear deflationary, US oil production is booming again due to the amazing gains in shale drilling efficiency and the massive Guyanese reserves will start pumping over the next couple of years likely capping prices.
However the aging population retiring will keep Labour markets tight if they don't have very high immigration rates (and if you use immigration to solve that problem you'll have a housing crisis instead.)
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