The Government’s fees-free education policy is a major factor behind consumer price index (CPI) prices falling to the very bottom of the Reserve Bank’s inflation target.
Inflation rose 0.5% over the March quarter for an annual increase of 1.1% – putting it at the very bottom of the Reserve Bank’s 1-3% inflation mandate.
This is down from 1.6% in the year-to-December.
But the drop is only expected to be temporary, according to Westpac Senior Economist Michael Gordon.
“We expect that a lower New Zealand dollar will give a boost to tradables prices (or lead to smaller declines) over the rest of this year.
And as the weak inflation through mid-2017 drops out, the year-on-year comparison will become more favourable for the Reserve Bank.”
As expected, tobacco and alcohol, as well as housing and household utilities added the most to the CPI over the quarter but were largely offset by the Government’s fees-free tertiary education policy.
From the start of the year, all New Zealand students who finished school in 2017, or will finish school during 2018, qualify for a year of free provider-based tertiary education or industry training.
In total, education prices fell 5.6% over the quarter, led by a 16% fall in tertiary and other post-school education prices.
As the fees otherwise paid by the students are being covered by the Government, which wasn’t the case last year, it registered as a price fall in the CPI.
The biggest price increases over the quarter came from alcoholic beverages and tobacco, and housing and household utilities.
The increased excise duty, introduced in January, influenced a 4.5% annual increase in alcohol and tobacco prices, with cigarettes and tobacco alone up 11%.
Nationally, the price of new build houses increased 4.7% in the year to March, led by a 5.8% increase in Auckland and a 4.2% increase in Wellington.
Canterbury, however, saw a 0.4% drop in new build prices.
Westpac was the only local bank whose forecast was correct – KiwiBank, ANZ, ASB and BNZ were all picking a 0.4% quarterly increase for a 1% increase year-on-year.
The market consensus of 0.5% and 1.1% – taken from a Bloomberg poll of both international economic institutions – showed many of the offshore banks were more hawkish about the expected inflation levels than the Kiwi based banks.
Fuel prices up, but not everywhere
Petrol prices were up 5% in the year-to-March, jumping 2.7% in the quarter alone.
The rising price of crude oil and falling exchange rate in the latter half of last year were cited as the main reasons for the increase.
The average price of 91 octane reached $2 in the March quarter – the highest level since December 2014, according to Statistics NZ prices senior manager Paul Pascoe.
He says for several quarters now, petrol prices have moved in different ways in different parts of the country, rather than falling consistently at a national level.
“Since 2013, Wellington and the South Island have typically had larger increases and smaller decreases than the rest of the country,” Pascoe says.
Come July 1, the Government will impose a 10c a litre fuel tax on Auckland motorists.
Minister of Transport Phil Twyford has ruled out expanding that to other regions in the Government’s first term.
37 Comments
So the reality for most of us is actually deflation ........... there is no inflation at all
Apart from a few cents increase in diesel and a likely increase in Auckland Rates , our annual expendituire as household on day to day stuff has fallen steadlly since 2012
Our grocery bill has been static for 2 years
Our energy costs are down since I challenged Genesis in 2014 and they put us on another "plan"
Our rates came down a huge amount when Auckland became a Unicity
The costs of eating out has gone up a bit but that's a discretionary spend
Our Insurance on the home spiked 2 years ago , but that was not a sustained increase it was a once off when the valuation method was changed .
The costs of servicing my Mercedes Diesel went up after the warranty expired , but thats a practice expense rather than household cost .
I guess if you are renting a home and have medical expenses then you would feel the inflation in those costs
Certainly no inflation at all in household income either.
But whenever I suggest that maybe, just maybe, the conditions might be right for a bit of fiscal stimulus I am warned that massive inflation is lurking under Earth just waiting to explode through the crust and engulf us all.
Unless things have changed dramatically in the last 4 months, that isn't true. Wages increased 3% between quarter 4 2016 and quarter 4 2017 (https://rbnz.govt.nz/monetary-policy/inflation-calculator).
No worries. I don't know the distribution of the increases and that would be interesting data to look at. These increases are consistent across the last decade so it can't just be down to a one-off last year - there was 31% wage inflation between Q4 2007 and Q4 2017 = 2.7% annual inflation.
The sentiment that wages are stagnant has been shared quite a bit in the comments section on this website and seems to have become accepted as fact - when actually there have been reasonable increases. Note that 31% wage inflation 2007 - 2017 (2.7% annual) compares with 19% (1.8% annual) CPI inflation over the same period, so wages have been rising quite a bit faster than expenses.
One final point - it is likely wage inflation isn't shared equally across the strata of society but neither is cost inflation. My family have been absolutely shafted by the increase in housing costs for example...
Hi cs, some might argue inflation is and has already reared its head (look at the purchasing power graph):
https://www.rbnz.govt.nz/challenge/team-resources/monetary-policy-and-i…
Especially since the 70’s when we started loaning and printing money into existence
Yes - for the median family life is more unaffordable - housing costs requiring two incomes to get by combined with poor wage growth that hasn't kept up with productivity growth since the 1970s and the neo-liberal takeover. The increased productivity went to profits not labour.
The powers that be then said "let them eat credit". And here we are living in the consequences of that.
Wages and prices can get into a spiral I believe. Head and tail merge.
You can always cherry pick a few items from the bundle which are reducing in price, and you are lucky if you personally are experiencing a cheaper cost of living.
The reason these stats are produced is your own personal situation cannot be extrapolated to the whole country, and the published stats are more valuable than your own personal experience.
@mfd of course you are correct , everyone is different, and we cant apply our individual scenario to the CPI Index and expect us to be aligned in all respects .
But , we are not dissimilar to many fiscally conservative Kiwi families and the trend for us is an increased living standard because our income has grown and expenses stayed the same or fell .
What is noticeable is that we now have more savings than ever before , and are able to enjoy life without money worries , unlike under Helen Clarke when I seemed to be always broke and struggling with a 10% mortgage rate
Boatman - unless its terminology, I’m struggling to understand your recent comments suggesting 1.1% is deflation, or that a fall from 1.6% to 1.1% is deflation ? I guess if its an argument about the components of the CPI, well everyone has a different personal CPI and I’m not smart enough to look at the whole country are argue with the stats Dept.
@Grant A , You are correct one man cannot argue with the Stats dept but I dont trust the figures simply because the figures are being massaged to show there is some "inlfation " when there is actually none .
If the truth be told , there is no way in hell the RBNZ or Stats NZ will acknowledge we are in a delfationary cycle.
They dare not do this.
Deflation is a much bigger problem than inflation , in some cases people stop spending on discretionary items in anticipation of further price reductions .
In my case , I keep meticulous records of our household spend and overall consumption , and in our experience , we have not seen ANY increase in our cost of living over the past 2 years ( or longer )
We are net savers right now , and have more cash on hand than ever before in our lives, because the costs of goods has fallen or remained static , and even the cost of services such as seen the quack or getting a haircut has not gone up much , you can still see a GP for $40 and get a haircut from a Iraqi immigrant for $10 in Mt Albert which is less than the Shearing Shed
I too keep good records, but CPI relates to the Nation's economy and not individuals and especially not demographics.
I am not sure why stats would lie, seems pointless.
RBNZ might arguably have a reason to lie if its wedded to not dropping the OCR for philosophical reasons.
The thing here is credibility, both have a lot to lose if caught out being "naughty" and there is no evidence of it. govn interference? cant see it the fallout would be huge for a Govn of the day.
I suggest the problem is really that some areas like council rates, power, anywhere where there is a "rentier" price charging ability are putting up prices well above CPI. However as I keep saying if I have $100 in my pocket and spend it all and one item goes up $1 I stop buying something unless that seller drops his price by $1.
Hence the problem is really that CPI is not giving us a true picture of the health of our economy, its skewed by those who can strong arm price increases and its deflationary elsewhere. hence yes I eventually agree with you, for me this isnt a healthy situation to be in.
Maybe. But overall that is not the case. Are you acknowledging the credit yoyu get for nil inflation for fertiliser, low inflation for groceries, low inflation for road freight, seafreight ... ?
:)
Sure some components might be high now, but they are offset by others that are low. And from 2015 to 2017 central govt and local govt charges ran very low increases, for example.
https://www.interest.co.nz/charts/prices/farm-expense-index
https://www.interest.co.nz/charts/prices/producer-price-index/ppi-inputs-some-components
https://www.interest.co.nz/charts/prices/consumer-prices-index/cpi-group
but David, those suppliers of fertilizer, freight etc cannot pass on their increases in rates etc so I suspect they are really being squeezed and have been for [too] many years. The Q is when to those being squeezed start to give up and fold, going off the market. In short I cant see this as being a healthy economy some ppl seem to claim it is.
I think it remains a concern that Central Banks have a wafer thin margin to stave of any deflationary spiral. Today, we have record low interest rates with low inflation. Post another shock, deflation could once again present itself but on a much wider scale. With already record low interest rates combined with an ever tightening credit environment and record debt levels, how can there be a quick recovery?
It's interesting to note that one inflationary component, rates increases, is very much driven along by debt pressures. The other one, construction, I think could easily turn deflationary in a downturn.
These are interesting, prosperous and very dangerous times in which we live. New Zealand could quickly fall victim to the missteps of other countries Central Banks. There is no room for error.
The interesting this is this point of view of "keeping your powder dry" in case its needed. If on the other hand we "keep the powder dry" and our economy is unduly weak as a consequence then its more likely to have a bad outcome from an [external] event. if however we prime the pump with what little we have the economy might be stronger and weather an [external] event better.
Hence for me I think the position of "keeping our powder dry" distinctly, stinks IMHO.
steven, lets say, if in an (external) event, our economy is found to have both high Government and private debt. What room is there for massive policy stimulus then? Do we again start throwing our state assets to the sharks? Right now, preserving our Government debt credit rating is a number one priority. If we damage that, we pay more. It's a tragic but fine balance having to borrow money, just to play catch up with essential maintenance of this country's precious infrastructure.
As you know, priming the pumps needs fuel. Unfortunately with our already high debt levels, it's more important we have Government with foresight than one that writes cheques willy nilly. Raising taxes in a downturn is counterproductive.
@CS.
Yes. It was you who mentioned about this trick of printing money and distributing to ease the debt level. I read something about it ; its called 'Helicopter Money' right ?
Now some people here say printing money to ease debt level is dangerous; Well that may be dangerous but still could do in some levels as solution to 'more dangerous' solutions.
????
The CPI calculation is absurd.
Student education is still paid for either directly by the student or by all of us through tax & in terms of my purchasing power tax is a price or cost that should be in the CPI.
The net effect on all average consumers of the 1st year free education is 0.
I beg to differ with some of your comments on this subject. Pensioners received an increase of just 1% this year. I can tell you that costs across the board for those living in such circumstances have increased more than 1%. Student education is masking the real impact.
Watch in the next few weeks how the rise in fuel prices will increase food, transport and a range of other necessities. We do not all live in big cities through choice, but I suggest a check is done on inflation in regional areas
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.