Recently released figures by Statistics New Zealand confirm that inflation reached a record-setting level of 5.9% by the close of 2021. This increase was driven by rising consumer prices, as construction costs, petrol and rents recorded a sharp upsurge in the final quarter of the year. Though disappointing, this outcome was not unexpected. An earlier survey of economists predicted that inflation would reach about 5.8%.
PM Jacinda Ardern attributed the increase to oil prices and international tensions. She noted that the high crude oil prices were a global problem. Statistics New Zealand indicated that petrol prices rose by about 30% during 2021. Financial experts have however warned that the high cost of fuel is likely to keep pushing up prices as businesses pass on the increased transport costs to clients to recoup their lost margins.
National Party leader, Christopher Luxon, voiced his disappointment at this report and what he termed as the government’s wasteful spending. He expressed concern over the impact high inflation could have on Kiwis, including driving up interest rates that would make it harder for people to get ahead. He urged the government to cut back on its spending and ensure where spending was happening, that it was of high quality. He said that the problem could be attributed to the constrained economy where labour shortages were taking place due to the closed borders and more spending by the government as it competed with the private sector for limited resources.
PM Ardern refuted allegations that the government’s spending was driving up the cost of living. She stated that the alternative would have been not to have a wage subsidy that had helped cushion the effects of the pandemic in the country.
Construction prices were also reported to have risen by over 16% during 2021, largely driven by the increased cost of building new dwellings. Residential rental rates were also found to have increased by about 5.5% in some regions.
Experts warn that the Reserve Bank of New Zealand (RBNZ) may need to lift interest rate figures to protect Kiwis’ purchasing power. Westpac’s senior economist, Satish Ranchhod, has stated that pricing pressures were likely to keep inflation up for at least the next year.
A survey by Retail NZ seems to support this view as its members concede that prices could increase by as much as 7-10% over the next quarter. Retail NZ chief executive, Greg Harford, noted that retail pricing had been under pressure for a long time and that cost increases could be expected to be passed on to consumers.
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