Household costs to rise $42 a week if inflation takes hold, economists predict

Monday, 21 June 2021

Household costs could increase by $42 a week if forecasts for higher inflation come true, economists say.

Gareth Kiernan, chief forecaster at Infometrics said that with typical weekly household expenditure sitting at about $1393, a 3 per cent lift in inflation over the next year would add nearly $42 to the average household weekly running costs.

The increase did not include a forecast rise in mortgage payments that are at historically low levels. Banks have begun lifting longer term fixed-term mortgage interest rates.

Kiernan said the rise inflation was driven by global issues which were beyond the control of the Reserve Bank.

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“The last decade or so we have seen a prolonged period of low inflation. This caused businesses to get into a mindset of being scared to put up their prices,” said Kiernan.

“We are getting to a point now where business margins are under pressure, demand conditions are strong. These are the most conducive conditions we have seen for a while for businesses to pass on their costs to consumers.”

Kiwibank chief economist Jarrod Kerr said the predicted inflation could be temporary.

Nick Tuffley, chief economist at ASB, said $42 a week could put pressure on houshold budgets.

“If it is $42 this year, $42 next year and another $42 next year, it can really add up over a period of time.”

“Whether a household is better or worse off really depends on what happens to their incomes. If we see a rise in wages, this will offset the rising consumer prices.”

Kiwibank chief economist Jarrod Kerr predicted inflation could be accompanied by a rise in wages, but those would not be evenly distributed across society.

“It will be a very mixed labour market. Construction and manufacturing sectors are doing quite well, while larger sections of the economy are not feeling that wage pressure,” Kerr said.

Some households will hardly notice the inflation if it is accompanied by an increased wage, while other households will struggle to scrape by, said Kerr.

Kerr said inflation might not continue to rise in the long term.

“These rates look high given what we have seen over the last decade. But most of the drivers here could be temporary.

“Supply disruptions that we have seen have been more persistent than we expected, but we don’t see them getting worse every year in the future,” Kerr said.