In fact, the cost of living crisis is getting worse as inflation hits 7.3%. The new figure was revealed when Stats NZ yesterday released its quarterly Consumer Price Index for the three months to June.
The rate of 7.3% — the highest since 1990 — was largely driven by rising rents and construction costs.
Prices for the construction of new dwellings increased by 18% in the June 2022 quarter, compared to the same period last year.
The 7.3% figure was higher than most economists were picking — expectations were for 7.1%.
It followed an annual increase of 6.9% in the March 2022 quarter, the previous largest annual movement since a 7.6% increase in the June 1990 quarter that occurred shortly after the introduction of Reserve Bank of New Zealand Act 1989.
Westpac senior economist Satish Ranchhod said there had been no let-up in the intense price pressures that had been buffeting households.
Much of the strength in consumer prices had been due to large increases in the price of food, petrol and housing costs.
However, the high level of inflation was not just due to a few specific items. Price pressures have been boiling over in every corner of the economy.
Underlying that broad-based strength in inflation had been a cocktail of supply-side cost pressures and firm consumer demand.
On the cost side of the ledger, continued disruptions to global and local supply chains have resulted in shortages of both production inputs and consumer goods. There has also been increasing upwards pressure on local wages.
"But what’s really lit a fire under consumer prices has been the strength of domestic demand. Indeed, if we look at the areas where businesses are reporting significant shortages of supplies, they’re predominantly in areas where demand has been strong, like the construction sector," Mr Ranchhod said.
"That is a big concern for the RBNZ, because if demand is running hot, inflation is likely to remain elevated even when the current pressure on operating costs (eventually) eases off. And a key factor underpinning the strength of household demand has been stimulus from low interest rates," Mr Ranchhod said.
With widespread pressure on operating costs, Westpac expected inflation would remain elevated over the remainder of this year. It was not forecasting a return back within the RBNZ’s target band until the middle of year at the earliest, he said.
ANZ economists said the one ray of hope for domestic inflation to start to ease soon was the housing market had continued to cool.
At some point, that should reduce some of the pressure on construction costs, but that was yet to be seen.
The timing of any reduction in inflation pressures in that sector was uncertain, given ongoing strong consenting activity, labour shortages,and materials shortages.
The housing market was slowing but there was still a large amount of consented work in the pipeline, keeping the pressure on construction costs for now.
Rent prices were also on the rise, lifting 1.2% quarter-on-quarter, or 4.3% year-on-year — the largest increase since the data began in 2000.
A note from ASB said chasing inflation seemed "a bit like a Tom and Jerry show" for central banks of late, with monetary policy makers in the role of the hapless cat, outwitted by persistent upside inflation surprises in the role of the wily mouse.
New Zealand in particular showed an example of a pragmatic and consistent approach that could pave the way to stabilisation in the future.
Despite the RBNZ’s "no change to our view" mantra last week, yesterday’s CPI result highlighted the risk that the cartoon had further to run, with the RBNZ needing to take an even firmer line at next month’s meeting.
— Additional reporting The New Zealand Herald
