If you’re wondering what’s been causing your wallet to feel a little lighter lately, you’re not alone.
According to the latest consumer price index (CPI), annual inflation has remained steady in the December quarter at 7.2%. The number follows a 7.2% increase in the September 2022 quarter, and a 7.2% increase in the June 2022 quarter.
So, what does that mean for you and your money? And what might be next for interest and mortgage rates? Let’s take a closer look.
What’s driving inflation at the moment
Housing and household utilities are among the main culprits for the current level of inflation. According to Stats NZ consumer prices senior manager Nicola Growden, the cost of building a new house has increased by 14% in the past year, with the construction sector reporting more expensive materials and higher labour costs.
And it’s not just building costs that are going up; rental prices have increased by 4.4% across New Zealand.
Food prices have also been on the rise, with higher prices for ready-to-eat food, vegetables, and meat and poultry driving the surge.
Lastly, transportation was the third largest contributor: international airfares rose 19% in the quarter, though this was partly offset by petrol prices falling 7.2%.
Not as bad as expected?
The latest inflation figure has come as a surprise to many. Most bank economists had been expecting inflation to slip back slightly to 7.1%, but the Reserve Bank was more pessimistic, predicting a high of 7.5%.
ANZ economists took this as a sign that inflation may finally ease over 2023, and that at least home-grown inflation has stabilised. And if that’s true, it would allow the Reserve Bank to slow their interest rate hikes. ANZ economists predict that the RBNZ will ‘only’ raise the official cash rate (OCR) by 0.5% on 22 February, instead of the 0.75% hike they had previously expected.
Kiwibank economists feel even more optimistic, arguing that inflation looks to have peaked and a 0.25% OCR rise should be enough to bring inflation down to 2-3% by early next year. This would be not-so-bad news for mortgage holders, as mortgage rates may not increase as much as initially expected.
However, other economists are still concerned about the inflation rate. Infometrics principal economist Brad Olsen said that the latest figures showed the ‘sustained broadness’ of inflation, with 72% of the items tracked by Stats NZ rising in price. ASB senior economist Mark Smith echoed the same sentiment, saying that there was still enough ‘under the surface’ to concern the Reserve Bank. Both ASB and Infometrics were sticking with their forecast of another 0.75% OCR increase this month.
The importance of budgeting
While the increase in inflation is lower than the 7.5% the RBNZ was expecting, it’s still well outside its 1 to 3% mandate. The upcoming OCR announcement on 22 February will shed light on the direction that our central bank is planning to take in its fight to inflation.
In the meantime, if you’re feeling the squeeze, it’s important to keep an eye on unnecessary costs and cut back where you can. Get in touch if you’d like to discuss your options.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.