Inflation is yet to peak despite hitting a 30-year high on Thursday, one leading economist says, as the Prime Minister continues to point at overseas factors as the main contributors to rising cost of living.
StatsNZ revealed on Thursday annual inflation in the year to March 2021 had risen 6.9 percent, the largest year-on-year increase since 1990 and up from the 5.9 percent recorded last quarter. Unlike the December 2021 numbers, this quarter included the impact of the war in Ukraine as well as global Omicron disruptions.
Most banks and economists were forecasting inflation to be at 7 percent or above, meaning Thursday's figures came in just under the prediction. But Brad Olsen, principal economist at Infometrics, doesn't expect inflation will stop there.
"Looking into the details, the Government's reduction of fuel excise duty and half-price public transport has limited just how high inflation has gone today," he told Newshub Live at 11:30am.
"The Russian invasion of Ukraine, the higher commodity prices we're seeing globally, the very intense level of domestic inflation here in New Zealand is all going to continue to roar upwards."
He said Infometrics believes inflation could peak at 7.6 percent, but won't quickly drop off given the continued supply chain disruption and issues arising from China's harsh lockdowns.
"So no real good news realistically here today for households. In fact, probably given that it wasn't quite as high today as we thought, very much more inflation to come. The Reserve Bank will continue to want to act aggressively to increase the official cash rate (OCR). So it is going to be a real challenge going forward for households."
StatsNZ said the main driver of the 6.9 percent annual inflation figures "was the housing and household utilities group, influenced by rising prices for construction and rentals for housing" as well as fuel prices, something the war in Ukraine has significantly affected.
Food prices were up 6.7 percent annually, with fruit and veges up a massive 17 percent.
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. Domestic, or non-tradable inflation, hit 6 percent, also the highest since June 2000.
Speaking from Tokyo on Thursday, Prime Minister Jacinda Ardern said countries around the world were seeing soaring inflation.
"That doesn't make it any easier for the New Zealanders who are experiencing it. But it does tell us where those pressures are coming from," she said.
Ardern said the Government had attacked one of the biggest contributions to inflation - petrol prices - by slashing fuel excise tax by 25 percent per litre while also halving public transport fare prices.
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.
The Reserve Bank last week hiked the 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 said.
John Carran, a Jarden economist and investment strategist, said the March numbers were below expectations but fairly consistent with Reserve Bank expectations that inflation would peak around 7 percent in the first quarter.
"The RBNZ will no doubt continue to feel justified in its aggressive approach of raising the OCR to quell people's spending urges and inflation expectations. This is with the aim of avoiding a significant wage/price spiral," he said.
"Therefore, it is likely the RBNZ will again raise the OCR by 0.5 percent to 2 percent when it releases its Monetary Policy Statement at the end of May."
Olsen said the sky-high cost of living meant it is "incredibly difficult" for young people trying to save for their first home.
"They're having to spend so much more on just trying to keep a roof over their head, put fuel in the car, put food on the table," he said.
"Trying to get through those essential costs, those day to day living costs, means that there's not nearly as much left over to try and save. For every step forward with any additional money you might have coming in, you're probably taking two steps back in terms of just how high those costs are going."
He said roughly $100 more a week is coming out of people's wallets in key household costs, but wage growth isn't keeping up with that.
"Very much the difficulty now with those very high levels of inflation and the risk that they continue for a lot longer is that you find people that struggle to make ends meet, they are struggling to have a family budget that actually matches up and they are not able to get ahead with their savings goals and look to their next big opportunity."