The economy is growing, but consumers are paying more for everyday items

Wednesday, 23 January 2019

Housing and construction prices were on the rise in the December quarter year end, latest Consumer Price Index data shows.

The Consumer Price Index (CPI), which measures household inflation, rose 1.9 per cent for the same period.

Prices for household utilities rose 3.1 per cent while rents were up 2.4 per cent. Construction costs rose 3.6 per cent, and local authority rates were up 5.1 per cent.

Inflation was up 0.1 per cent in the December 2018 quarter compared to the September quarter, despite lower petrol prices, and cheaper vegetables and cigarettes, Stats NZ said on Wednesday.

Prices also rose for transport, fuel and alcohol and tobacco, up 9.2 per cent.

The annual inflation rate has ranged between 1.1 per cent and 2.2 per cent since December 2016.

* Unemployment drops sharply, hitting lowest level since 2008

* Rising fuel prices are not the only thing making life in New Zealand more expensive**

In particular, domestically generated inflation is rising, after volatile items like petrol and food, which is affected by seasonal fluctuations, are accounted for.

Annual inflation was roughly in line with the Reserve Bank's expectations of 2 per cent.

'We're taking this as actually a positive number and we have an economy that's grown at a decent clip, starting to produce a bit of inflation and we're looking good into 2019,' Kiwibank chief economist Jarrod Kerr said.

'Inflation pressure is building underneath the surface and we haven't had meaningful inflation in New Zealand for 10 years. So this is a good sign.'

Imported goods like electronics from Asia continue to come down in price.

The price of domestically traded goods picking up suggested underlying inflation pressures were starting to build in the economy, ASB economist Kim Mundy said.

Local authority rates were up 5.1 per cent alongside household utilities which increased 3.1 per cent while rents were also up 2.4 per cent.

'For the Reserve Bank it's a good thing because it means that we're one step closer to core inflation getting back in line with the mid-point of their target band. But for the everyday consumer it suggests that the costs you're facing on an everyday basis are also rising, ' she said.

'So, if your wages aren't keeping up in line with that you might be facing increased cost pressures.'

Price rises were quite wide-spread over the quarter, going beyond housing and construction to pinch consumers in telecommunications, recreation and passenger services.

And with the figures falling in line with expectations, the Reserve Bank was likely to focus on the risks to the economy over the next two years, Kerr said.

'And that's what we'll hear from them in February when they produce their monetary policy statement and updated forecast.'

Potential risks to the economy are coming from overseas, however.

Geopolitical factors such as Brexit and China's slowing economic growth have economists concerned, Kerr said.

Geopolitical factors like Brexit pose a risk to the economy, Jarrod Kerr, chief economist at Kiwibank says.

In particular the risk of a trade war ballooning out of control and causing a slow down in global trade could badly affect a small open economy like New Zealand's.

'So this is what we're worried about. China is such a large trading partner of ours and Australia, if they slow down and look like they're about to head for some kind of crash we get worried because we're leveraged and highly connected to Asia.

'If things deteriorate then all bets are off and we could have significant slowdown here and inflation could drop. So a lot of risks on the horizon but the data we got today shows us that the growth we've had so far, the inflation that we've had so far is ok and should get better this year,' Kerr said.

*This article has been updated.