Consumer Price Index: Annual inflation hits 6.9 percent - largest increase in more than 30 years

New Zealand's cost of living challenge has been laid bare with the latest Consumer Price Index (CPI) figures revealing annual inflation hit 6.9 percent in the March quarter.

That's the largest year-on-year increase in nearly 32 years and is up from the 5.9 percent rate recorded for the year to December 2021, itself the highest since 1990. The CPI rose 1.8 percent in the March quarter compared to the December quarter.

"The consumers price index increased 6.9 percent in the March 2022 quarter compared with the March 2021 quarter, the largest movement since a 7.6 percent annual increase in the year to the June 1990 quarter", StatsNZ said on Thursday morning.

"The 6.9 percent increase follows an annual increase of 5.9 percent in the December 2021 quarter, the previous largest annual movement since the 7.6 percent increase in the June 1990 quarter, which occurred shortly after the Reserve Bank of New Zealand Act 1989.

"The Act came into effect in February 1990 to target the high inflation from the previous decade and maintain stability in the general level of prices over the medium term."

That 6.9 percent increase is just below the 7 percent economists and banks were predicting ahead of Thursday's reveal.

Consumer Price Index: Annual inflation hits 6.9 percent - largest increase in more than 30 years
Photo credit: StatsNZ

According to StatsNZ, the main driver of the 6.9 percent annual inflation "was the housing and household utilities group, influenced by rising prices for construction and rentals for housing".

"Prices for the construction of new dwellings increased 18 percent in the March 2022 quarter compared with the March 2021 quarter, the largest increase recorded since the series began in 1985."

StatsNZ senior prices manager Aaron Beck said constructions firms have been experiencing supply chain issues, higher labour costs and high demand which have "pushed up the cost of building a new house".

The next largest contribution was transport, influenced by the higher cost of petrol and second-hand cars.

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

Tradable inflation - which measures goods and services influenced by foreign markets like fuel prices - hit 8.5 percent, the biggest annual movement since it began being recorded in June 2000.

The latest figure includes the impact of Russia's invasion of Ukraine in late February as well as the impact of the Omicron outbreak on global supply chains and here in New Zealand.

When questioned on the sky-high inflation, the Government has been quick to point to these international factors as causes.

That's what Finance Minister Grant Robertson did on Thursday.

"These are challenging times for the global economy with significant increases in food and fuel prices hitting all nations," he said.

"Inflation is at a 40-year-high of 8.5 percent in the United States and a 30-year high of 7 percent in the United Kingdom. Chinese ports have been shut for long periods, adding to supply chain disruptions. New Zealand cannot be immune to these challenges and the government can’t control the price of food or petrol."

The minister said New Zealand is "well positioned to respond to this challenge".

"Unemployment [is] at a record low, exports are up and the economy is growing and helping keep a lid on debt, which is well below those of the countries we compare ourselves with."

The Government earlier this year slashed fuel excise tax by 25 cents per litre and halved public transport costs. On April 1, a package of benefit rate, minimum wage and tax credit increases came into effect, which the Government said will help low and middle-income families fight rising prices, while the Winter Energy Package returns from May 1. 

“We are also focused on how we can get to the root causes of some price increases," Robertson said on Thursday.

"We are committed to taking action to boost competition in the New Zealand grocery market to ensure Kiwis get a fair price. We are also moving to reduce our dependence on oil by decarbonising our transport fleet, through initiatives like the Clean Car Discount."

But there is no silver bullet, Robertson said. 

"We are continuing to keep a careful, balanced approach to our future spending. There are always more calls for spending than we have the money to be able to meet," he said.

"So we are keeping our focus on meeting the core needs in health, education, housing, and investing in the skills, infrastructure and industries we need to grow higher paying jobs."

The latest figures have been released.
The latest figures have been released. Photo credit: Getty Images.

The Thursday figures show domestic, or non-tradable inflation, hit 6 percent, also the highest since June 2000.

"Higher prices for construction, rentals for housing, and local authority rates were partly offset by domestic air transport," StatsNZ said.

"Non-tradable inflation measures goods and services that do not face foreign competition. It shows how domestic demand and supply conditions are affecting consumer prices."

Reacting to Thursday's numbers, National leader Christopher Luxon said the Government needed to present a plan to get inflation under control. He said inflation is a "silent thief in your pocket putting Kiwis under massive pressure, and we are seeing a squeezed middle emerge".

"Kiwis are facing the consequences of Labour's poor economic management, with inflation in New Zealand outpacing Australia’s and many other countries.

"Rents are up $150 a week since 2017, interest rates are rising and wages increases are barely a third of inflation. Kiwis are going backwards under Labour and many families are struggling to make ends meet."

ACT leader David Seymour said it was a "direct result of Labour’s addiction to borrowing and spending".

"Its relentless borrowing and spending has added to the cost of just about everything. Prices are rising because there’s too much money chasing too few goods."

He said Kiwis need tax relief and advocates for the middle-income tax rate to be reduced from 30 percent to 17.5 percent.

"The cost of living for New Zealand families is through the roof. Rents are up, mortgage rates are on the rise, the cost of food is up, petrol is up, but wages aren’t keeping up."

Greens finance spokesperson Julie Anne Genter said the high inflation has a significant impact on lower income families. 

"Those with the least experience inflation at a much higher rate than those with the most. The latest benefit stats, also out today, show the value of hardship assistance is rising, especially the value of special needs grants and benefit advance payments.

"Not only would broadening our tax base help to dampen down aggregate demand and inflation in the short-term, it is essential to having a fairer, stronger tax system."

The Greens want to lift benefit and Working For Families rates, introduce rent controls, make public transport fares free and "breakup the supermarket duopoly to stop huge corporate profiteering from people buying the essentials to live".

Speaking from Singapore on Wednesday, ahead of the CPI data release, Prime Minister Jacinda Ardern said external impacts were influencing inflation. 

"Unfortunately, we do know that we are in a particular point with the pressures that New Zealand is experiencing externally, the supply constraint issues… the war in Ukraine, it is having an impact," she said. 

"We are expecting that impact to be felt this quarter and we are, of course, concerned about that."

Jacinda Ardern speaking in Singapore.
Jacinda Ardern speaking in Singapore. Photo credit: Newshub.

On Thursday morning's AM, Jay Clarke, the director of Woodhaven Gardens which grows 24 different crops, said his business is facing unprecedented costs

"Some of that's driven from international factors; the price of fertiliser has gone up over 300 percent, the cost of fuel has gone up a couple of hundred percent," he said. "Then there are things like seed, freight that we have to acquire to get our products to market that are up 30 or 40 percent. Cost pressure across the board is out of control."

"Then, there are also some internally driven things that come from Government policy as well. We've seen labour costs rise by about 60 percent over the last three years and that's driven by minimum wage increases and constraints on our labour market, with Government implemented COVID policies and immigration settings."

According to data out earlier in April, food prices jumped 7.6 percent in the year to March, while Kiwis were also alarmed last month when fuel prices began passing the $3 mark.

The Opposition wants the Government to rein in its spending and listen to the Reserve Bank Governor, who this week suggested "more targeted effective fiscal policies" were needed to combat inflation. Finance Minister Grant Robertson said those comments were about the global context, rather than aimed at his Government's spending plan. 

The Reserve Bank last week hiked the official cash rate (OCR) by 50 basis points - the largest increase since 2000 - in response to rising inflation. 

Delivering the second Monetary Policy statement of 2022, the RBNZ said the hike was needed to best maintain price stability and support maximum sustainable employment. 

"Moving the OCR to a more neutral stance sooner will reduce the risks of rising inflation expectations. A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment," the statement reads. 

Over the medium term, the RBNZ is required to keep inflation between 1 and 3 percent. It's expected to hike the OCR again at the next Monetary Policy Review in May. 

The ACT Party on Thursday morning said it would bring the number of bureaucrats working in central government down to 2017 levels, saving about $1.2 billion. Leader David Seymour said taming inflation began with "politicians showing a bit of restraint".