'Perfect storm': Cost of living rises 0.8 percent, tipped to increase further

The Consumer Price Index (CPI) which measures the cost of living for the average Kiwi, rose 0.8 percent in the March 2021 quarter
The Consumer Price Index (CPI) which measures the cost of living for the average Kiwi, rose 0.8 percent in the March 2021 quarter Photo credit: Getty.

Household living costs rose 0.8 percent in the March 2021 quarter, the latest Statistics New Zealand Consumer Price Index survey shows.

Consumer prices are on their way up, as petrol, transport and rent are becoming more expensive.

The Consumer Price Index (CPI) survey measures how price changes affect the average consumer. It looks at goods and services people spend money on and records the quarterly and annual price change - how much prices have gone up or down.   

Over the March quarter, petrol prices rose 7.2 percent - the biggest quarterly rise since June 2015, Statistics New Zealand said. 

Statistics New Zealand prices senior manager Aaron Beck said the weighted average price of 1 litre of 91 octane was $2 in the March 2021 quarter, up from $1.87 the previous quarter. 

But petrol prices were 3.8 percent lower than a year ago, when the weighted average price was $2.09.

"Global oil prices plunged in early 2020 as the COVID-19 pandemic took hold. Prices have risen since then," Beck said.

Transport prices rose 3.9 percent, the biggest quarterly rise in over a decade. This was driven by higher prices for private transport supplies and services and increases in petrol prices and vehicle prices.

Rent prices rose 1 percent over the quarter, marking the biggest quarterly increase in a year.

On an annual basis (the March 2021 quarter compared to March 2020 quarter), price inflation was 1.5 percent.

The 0.8 percent quarterly CPI rise follows a 0.5 percent rise in the December 2020 quarter, when the annual inflation rate was 1.4 percent.  

Petrol price rises were highest in Canterbury at 7.9 percent over the quarter, followed by Auckland at 6.5 percent and Wellington at 5.3 percent.

The cost to rent in Wellington rose 1.7 percent over the March quarter - an annual increase of 4.3 percent.  In Canterbury, rent prices rose 0.8 percent (an annual rise of 1.5 percent) and in Auckland by 0.5 percent (an annual rise of 1.1 percent).

Used car prices rose 4.4 percent, due to delays in goods imports.

The cost to build a house increased by 1.2 percent over the quarter, as material shortages and labour costs put pressure on prices.

"Repeated shortages of many building products such as timber and house fittings and furnishings, as well as higher labour costs likely contributed to the movement," Beck added.

Prices for electronic items, such as cellphones, TVs, furniture and furnishings fell, reflecting post-Christmas and back-to-school sales and price adjustments for new models at the same cost.

Over the quarter, the average household spent 10.26 percent of their income on rent and almost 19 percent on food. On an annual basis, rent prices increased 2.7 percent and food prices increased 1.1 percent.

Ahead of the release, ASB senior economist Mark Smith confirmed the bank's forecast was for CPI to rise 0.8 percent in the March 2021 quarter.

He expects annual inflation to rise from 1.5 percent to 2.5 percent as the effects of supply bottlenecks and global shipping disruptions are reflected in consumer prices.

"We expect inflation to pick up from here...we'd probably define it as a 'perfect storm' of influences on prices," Smith said.

Other factors influencing prices are capacity constraints, particularly in construction (a shortage of labour and materials) and inflation from the housing market (higher rents and maintenance services) to be reflected in prices.

"The consequence of the Government's policy to remove tax deductibility on interest expenses will be higher rents...we expect that to come through in the CPI in the next few quarters," Smith added.

ASB is forecasting annual inflation to peak at 2.5 percent in June 2021 quarter. 

Retail interest rates are expected to stay low until the second half of 2022.

"By then, we think the economy will have found its footing and those interest rates will start to move up," Smith said.