According to Statistics New Zealand, food prices experienced a slight increase of 0.2 per cent in August compared to July, although the annual inflation rate for food has eased to 0.4 per cent. This suggests that while prices for dining out, takeaways, and groceries continue to rise, the overall pace of food price inflation is slowing.
Notably, the cost of certain grocery items, including olive oil, butter, and chocolate, has seen significant increases. The price of a 250g block of chocolate, for instance, has surged by 20 per cent over the past year. The rise in olive oil prices has been attributed to adverse weather conditions in Europe, while chocolate prices have been affected by factors such as disease, drought, and supply shortages.
On the other hand, transport costs have decreased, with lower petrol prices and reduced airfares contributing to a drop in overall transport expenses. Despite these reductions, rent prices have continued to climb. These changes in specific sectors represent just under half of the consumer price index and suggest that inflation is gradually slowing.
ASB’s senior economist Mark Smith noted that the recent data points to an anticipated monthly inflation rate of 0.3 per cent. This moderation in annual inflation is leading to expectations that the Consumer Price Index (CPI) inflation rate could fall below 2.5 per cent for the third quarter. Smith predicts that the Reserve Bank will likely continue to lower the official cash rate by 25 basis points in its upcoming meetings, aiming for a new rate of 4.75 per cent. However, he emphasised that future changes to the cash rate will be influenced by broader economic factors, including inflation trends and the labour market.
Despite these positive signs on the inflation front, consumer activity remains tepid. Although there was a slight 0.2 per cent increase in retail sales using electronic cards in August, this figure is still 2.9 per cent lower compared to the same month last year. Spending on durable goods such as furniture, electronics, and clothing saw some improvement, but expenditure on hospitality and vehicle-related items declined.
Westpac’s senior economist, Satish Ranchhod, commented that the modest rise in retail sales was surprising, given the recent implementation of tax cuts intended to boost spending. He attributed the cautious consumer behaviour to ongoing high living costs and interest rates, which continue to weigh on household finances. Additionally, with the labour market softening, many households remain wary of spending despite the potential benefits of recent interest rate reductions.
In summary, while inflationary pressures are easing, the impact on consumer spending is still limited, reflecting broader economic uncertainties and ongoing financial caution among households.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients.
Find out why.