Annual inflation has risen 7.3 percent, the largest jump in 32 years, new figures from StatsNZ reveal.
The Consumer Price Index (CPI) was released on Monday morning, showing that annual inflation increased 7.3 since the June 2021 quarter. That's the largest year-on-year increase since 1990 and follows a 6.9 percent annual increase recorded in the March quarter.
Quarterly inflation jumped 1.7 percent in the June 2022 quarter from the March 2022 quarter. This is down slightly on the 1.8 percent quarterly increase recorded in March.
The large annual increase was driven primarily by housing, including the rising prices for constructions (up 18 percent) and rentals (up 4.3 percent), StatsNZ said.
"Supply-chain issues, labour costs, and higher demand have continued to push up the cost of building a new house," StatsNZ general manager Jason Attewell said. "The 18 percent annual increase in the June quarter follows an 18 percent increase in March and a 16 percent increase in December 2021."
Following housing, transport was the next biggest contributor to annual inflation due to higher prices of petrol and diesel.
Petrol prices increased 32 percent in the year to the June 2022 quarter, the largest annual increase since the June 1985 quarter. Diesel prices increased 74 percent over the same period.
"The average price of 1 litre of 91 octane petrol rose 6.3 percent to $2.84 in the June 2022 quarter, compared with $2.67 in the March 2022 quarter,” Attewell said. "The average price of 1 litre of diesel rose 30 percent to $2.57 this quarter, compared with $1.98 in the March quarter."
The tradeable inflation rate - which are the goods and services influenced by the foreign markets - was 8.7 percent for the year to June 2022. That's the largest shift - either up or down - since this began being tracked in June 2000. The biggest contributors were petrol, diesel, milk, cheese and eggs.
Domestic - non-tradeable inflation - was 6.3 percent year-on-year. That's also the highest since 2000.
The Government got in ahead of the CPI figures on Sunday by announcing it would be extending cuts to the Fuel Excise Duty, Road User Charges and public transport fares until January 31 next year. That support, which was first introduced in March and then extended at the May Budget, was scheduled to end in August.
"We know that inflation is rising across the world, and cost of living pressures are making it tough for New Zealand right now," Finance Minister Grant Robertson said.
"High fuel prices, particularly driven by the impact of the Russian invasion of Ukraine, are a global problem affecting households and businesses in New Zealand."
Robertson said modelling from Treasury estimated the combined impacts of the Government's cuts would reduce headline inflation by 0.5 percent in the June 2022 quarter.
He acknowledged that while inflation was expected to peak in the June 2022 quarter, it's likely to stay at higher than usual levels for some time.
The Budget Economic and Fiscal Update (BEFU) in May showed inflation would remain outside of the Reserve Bank's targeted range of 1 to 3 percent until 2025. It said inflation was the result of strong domestic demand, as well as global factors like supply chain issues and the war in Ukraine.
In its May Monetary Policy Statement (MPS), the Reserve Bank said it expected inflation to fall to 4.4 percent in 2023, 2.5 percent in 2024 and 2 percent in 2025.
Mark Smith, a senior economist with ASB, reacted to Monday's figures by saying that while CPI has likely peaked "but this is still uncertain".
"Unless labour market pressures concertedly ease, current high inflation outcomes run the risk of being increasingly entrenched."
He said the 7.3 percent figure was stronger than ASB's forecast, the market median or the MPS.
"Somewhat worryingly for the RBNZ, higher than expected non-tradable prices accounted for the upward surprise to the MPS forecast, with annual non-tradable inflation hitting a record high," Smith said.
"Annual rates for tradable and non-tradable inflation were both above 6%, suggesting that pricing pressures reflect both domestic and external drivers, and highlighting the challenges facing the RBNZ."
On top of slashing fuel and public transport costs, the Government announced in May that New Zealanders earning less than $70,000 and who don't receive the Winter Energy Payment will receive roughly $27 a week for three months from August.
Inflation is affecting countries around the globe, with Australia at 5.1 percent in the year to March, the UK at 9.1 percent in the year to May and the United States at 9.1 percent in the year to June.
The RBNZ last week hiked the official cash rate (OCR) by 50 basis points to 2.5 percent as it continues to try dampen demand. The OCR is expected to rise to around 3.9 percent over the next year.