NZ Economy and Higher Inflation in March Quarter

  • Apr 22, 2020 NZST
  • Team Kalkine
NZ Economy and Higher Inflation in March Quarter

New Zealand has recorded a surprisingly strong increase in its first quarter inflation, surpassing even the most hawkish economist's expectations. NZ’s CPI (or Consumers Price Index) rose 0.8% in the quarter ended March 2020 affected by increasing prices for cigarettes as well as rentals for housing. The annual inflation rate stood at 2.5%, which happens to be the highest since quarter ended September 2011 when the figure was 4.6%. The annual tobacco tax rise on January 1, 2020 rose cigarette and tobacco prices 11% during this quarter.

 

Source: Stats NZ

Source: Stats NZ

The government of NZ raised excise tax on tobacco by 11.5%, however, not all the products reflected the full effect of tax change in their prices. The average price was $41.89 in March of a box of 25 cigarettes, which stood at $37.51 in December. The cost of one cigarette is about $1.70 as compared to $1.15 at the beginning of 2016.

 

Source: Stats NZ

Source: Stats NZ

Rents up in year to March

As per the release, the rents increased by 1.2% in the quarter ended March 2020, and 3.7% for the year. Rent makes the contribution of approximately 9% of household expenditure, which makes it the highest-weighted component at the subgroup level in the CPI basket. Auckland rents rose by 2.1 percent, Canterbury rents rose by 2.0 percent and Wellington rents rose by 5.7 percent in the year to March 2020.

The South Island excluding Canterbury increased 5.3 per cent and The North Island excluding Wellington and Auckland increased 5.8 per cent./

 

Source: Stats NZ

Source: Stats NZ

Decreasing Prices for Airfares and Petrol Decreased Transport Costs

The transport costs fell by 1.7 per cent in the quarter ended March 2020, primarily influenced by price falls for international airfares as well as petrol.

In the March quarter, the prices for international airfares decreased by 11%. The international airfares generally witness a rise in the quarter ended December, whereas, in the March quarter they witness a fall.

  • Petrol prices fell 2.3 percent in the March 2020 quarter after a 1.6 percent rise in the December 2019 quarter;
  • The average price of 91 octane petrol was $2.09 a litre this quarter, down from $2.14 last quarter;
  • After rising slightly in January, petrol prices fell in both February and March;
  • By the last week of March, the petrol pump price was about 9 per cent lower than the March quarter weighted average price;
  • Domestic airfares also fell, down 1.1 per cent.

Food price index

Food prices rose 0.7 percent in March 2020. After seasonal adjustment, they were up by 0.2%. In March 2020 compared with February 2020:

  • Fruit and vegetable prices rose 3.0 per cent
  • Meat, poultry, and fish prices were flat
  • Grocery food prices rose 0.2 percent N
  • Non-alcoholic beverage prices rose by 1.5 percent
  • Restaurant meals and ready-to-eat food prices rose by 0.4%.

 

Source: Stats NZ

Source: Stats NZ

Coming to the annual change, food prices increased by 3.3 percent in the year ended March 2020. In March 2020 compared with March 2019:

  • Fruit and vegetable prices decreased 1.0 percent;
  • Meat, poultry, and fish prices increased 7.5 percent;
  • Grocery food prices increased 3.2 percent;
  • Non-alcoholic beverage prices increased 1.6 percent;
  • Restaurant meals and ready-to-eat food prices increased 3.9 percent.

Annual domestic inflation tops 3% for 3rd quarter in a row

The non-tradable or domestic inflation rose 3.4% in the year to March 2020. As per the release, the non-tradable inflation measures good and services which do not witness any sort of foreign competition. It contains housing-related costs like rent, construction, rates and electricity, as well as insurance, restaurant meals, and many services.

This happens to be the highest annual increase in non-tradable inflation ever since September 2011 quarter. The domestic inflation in September 2011 quarter was 4.5 per cent, which was influenced by a rise in GST in the month of October 2010.

As per Stats NZ, the annual domestic inflation has been over 3% for the 3 quarters in a row, up 3.1% in the year to December 2019, as well as 3.2% in the year to September 2019. It was also mentioned that the latest annual increase in non-tradable inflation was affected by the increased prices for rents, cigarettes as well as tobacco, construction of new houses, and local authority rates.  

 


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