NZ annual inflation hits its highest level in more than 30 years

  • By Zilla Efrat

New Zealand’s consumers price index jumped 6.9 per cent in the March 2022 quarter, compared with the March 2021 quarter, on the back of rising prices for construction, housing rentals and fuel.

That is the largest movement since a 7.6 per cent annual increase in the year to the June 1990 quarter, says Stats NZ.

The 6.9 per cent increase follows an annual increase of 5.9 per cent in the December 2021 quarter, the previous largest annual movement since the 7.6 per cent increase in the June 1990 quarter.

Stats NZ says prices for the construction of new dwellings increased 18 per cent in the March 2022 quarter compared with the March 2021 quarter – the largest increase recorded since the series began in 1985.

“Construction firms have been experiencing many supply-chain issues, higher labour costs, and also higher demand, which have pushed up the cost of building a new house,” senior prices manager at Stats NZ, Aaron Beck.

The next largest contributor to the annual inflation rate was influenced by higher prices for petrol and second-hand cars.

Petrol prices increased 32 per cent in the year to the March 2022 quarter, the largest annual increase since the June 1985 quarter.

The consumers price index rose 1.8 per cent in the March 2022 quarter compared with the December 2021 quarter, mainly driven by higher petrol prices. Construction of new dwellings, rentals for housing and cigarettes were the next largest contributors.

“The March quarter inflation figures were a touch lower than our forecast for a 1.9 per cent rise and the average market forecast. However, the surprise was small, falling well within the range of analysts’ expectations,” says Satish Ranchhod, a senior economist at Westpac NZ.

“Even so, we’re still left with a picture of strong and widespread inflation pressures, which are squeezing households’ purchasing power.

“Inflation is being boosted by global factors, like high fuel prices. However, domestically sourced inflation is also running hot, with firmness in domestic demand and growing upward pressure on wages.”

Ranchhod says the latest CPI result supports Westpac NZ’s expectations for a series of further rate hikes from the Reserve Bank of New Zealand over the coming months.

Mark Smith, a senior economist at ASB Bank, says annual consumer price inflation generally undershot expectations.

“Much of the downward surprise to our inflation pick looks to be due to timing and will likely reverse. Increases in consumer prices look to be widespread, with the risk of high inflation becoming more entrenched.

“We expect the RBNZ to move swiftly and deliver a 50 basis point hike in May.  The degree of additional tightening beyond that is dependent on the outlook for inflation and inflation expectations, and how the New Zealand economy responds to tighter financial conditions.”

Similarly, ANZ economists expect the latest data to firm the RBNZ’s resolve that it needs to continue to rapidly raise interest rates to get ahead of the domestic inflation pulse, including, with another 50 basis point hike in May.

“Inflation is increasingly permeating through the domestic economy, and with the labour market likely to tighten further yet in 2022, there’s still work to be done to tame inflation, and to keep a lid on inflation expectations,” they say.