The cost of living

George St bustling with shoppers.
George St bustling with shoppers.
Laura Todd stands in floodwaters at Marlow, near her former home in High Wycombe, north of London...
Laura Todd stands in floodwaters at Marlow, near her former home in High Wycombe, north of London. Photo supplied.

Is New Zealand the land of the long white shopping bill? Shane Gilchrist reports.

Laura Todd might have been enjoying the sunshine at Papamoa Beach, Bay of Plenty, when her cellphone rang earlier this week, but the ensuing conversation sure threw a few clouds into the mix.

Having spent several years teaching in England, the 32-year-old Invercargill-raised woman has recently returned to New Zealand. Hence, she wasn't around when the container ship Rena ran aground off the BOP coastline in 2011 and the vessel's leaking oil transformed areas of Papamoa Beach from golden to black.

Although this story's not about environmental concerns or, in fact, the Rena, it is worth contemplating the vessel's cargo, which included rice, flour, pasta, meat and vegetables, clothing, the prices of which have been rising, not sinking, in New Zealand for some time.

''Clothing and shoes are definitely more expensive here,'' Ms Todd said.

''In the UK, there are just so many shops competing. High street stores have sales at least three times a year at which you can buy stuff reduced by 70%. Bedding and furniture is a lot cheaper in the UK. We don't have [flat-pack store] Ikea here. Eating out is expensive here, too, but you do get good quality and service in New Zealand.''

Ms Todd will find little comfort in Statistics New Zealand figures, which show average weekly household expenditure increased by 9.1% (from $1019 to $1111) in the three years to July 2013.

The biggest changes in average weekly household expenditure were on transport (up $27 to $158), food (up $15 to $193) and housing and household utilities (up $21 to $273).

(*A 2014 household survey is due to be published within the next month, Statistics New Zealand confirms.)

Statistics New Zealand's most recent food price index (as at May 2014) shows food prices, overall, increased 1.8% on the previous year, with fruit and vegetable prices up 5.6%, meat, poultry and fish prices up 0.5% and restaurant meals and ready-to-eat food prices increasing 2.1%.

The World Bank's price level index, based on 2011 data, shows New Zealand had the 12th-highest prices in the world that year.

The index, which includes exchange rates, ranks New Zealand less expensive than Australia (4th highest) and Canada (10th highest), but more expensive than Ireland (17th), the United Kingdom (18th) and the United States (22nd).

New Zealand was second only to Australia out of 19 countries in ''purchasing power parity'', which calculates that to buy the same amount of goods (for example a shopping basket), on a level global scale it would cost $US135.30 in New Zealand, $US100 in the United States and $US38.30 in India.

A UMR Research online survey, conducted late last year and comprising 1000 New Zealanders 18 years or older, shows that although we have more material possessions than in 1984, we also reported much higher levels of financial pressure.

According to UMR, New Zealanders were now more likely to delay repairing household appliances, put up with feeling cold in order to reduce heating costs, have fewer than three days holiday away from home a year and sometimes postpone visits to the doctor.

Still, it seems it's not all one-way traffic: in 1984, 10% of New Zealanders reported not being able to afford a car; in 2013, that figure was 7%.

A look at's ''grocery price monitor'' (as at June 23, 2014) reveals there is very little between the cost of the same basket of groceries bought online at an inner-Auckland supermarket and its Sydney counterpart.

Comprising 28 items, including staples such as milk, cheese, rice, pasta, tinned goods and a range of meat, the basket is published by Good Food magazine as a ''healthy food'' shopping list, and is supplied by the University of Otago's department of human nutrition. The difference? At $NZ152.60, the Sydney supermarket's shopping basket won by a mere $NZ1.06.

And Deutsche Bank's 2013 report, ''The Random Walk: Mapping the World's Prices'', which compares a range of common goods and services, reveals New Zealanders might pay more than Americans for an iPhone, but less than Australians for a bunch of roses (see graphic for more details).

Shamubeel Equab, principal economist at the New Zealand Institute of Economic Research in Wellington, says our cost of living is ''relatively high''. But he is also at pains to point out the same agencies that calculate that cost have also found our quality of life to be very good.

''There are no free lunches,'' Mr Equab says.

''Let's look at where some of the price changes have occurred over the past 10 years. Those cost increases tend to be more domestic-related and include insurance premiums [in the wake of the Canterbury earthquakes of 2010-2011], rates, and electricity [the cost of which has doubled since deregulation of the industry began in 1986].

''But there have been things that have been falling in price. These are mainly high-tech items and this is driven by technological change. For example, companies are so much better at making, say, flat-screen TVs. I remember my first flat-screen TV cost more than $4000; now you can get a really good one for under $1000,'' Mr Equab says.

''We notice the change in price of things we buy all the time, so when food or petrol moves up or down, we are very attuned to that. We are less attuned to changes in the prices of cars or TVs, fridges and what not.

''Retailing is actually very tough; it's a very competitive industry; margins are tight. In small towns in New Zealand, it's hard to make a buck.

''There is nothing we have seen that suggests New Zealand businesses are rapacious in their behaviour.''

According to Statistics New Zealand's annual enterprise survey, the average net profit for retailers across the country is 5%.

Mark Johnston, chief executive of New Zealand Retailers Association Inc, notes that during the past decade, most New Zealand retailers have experienced a steady erosion of their net margins, ''perhaps highlighting both the consistently strong bargaining power of global multinational suppliers and service providers, and the seemingly inexorable march of technology into our everyday lives, enabling us, as consumers, to increasingly shop in a global, borderless retail world''.

Mr Johnston says the local grocery market is ''competitive'' and has largely kept price inflation low, between -1% and 1% since the start of 2012.

''However, retailer margins in this sector can be influenced disproportionately by offshore multinational suppliers.

''Price comparisons on the same products in other markets can often show marked differences. For example, the net cost price [not the retail price to the consumer] to the New Zealand retailer can sometimes range from 15% to just under 50% more compared with the same products sold in supermarkets in Australia and the UK.''

New Zealand's big-box grocery retailers generally operate on single-digit net margins, of between 3%-6%, Mr Johnston says, adding some of the biggest multinational brands (including Nestle, Kraft Foods, GlaxoSmithKline, Coca-Cola, General Mills and Proctor & Gamble) generate ebit (earnings before interest and taxes) margins ranging between 15%-30% worldwide.

''Consumers expect to be able to buy all of these big brands, so it's sometimes a bit of a catch-22 type situation for the retailer, as they have to meet customer demand and balance their pricing with the much stronger negotiating power of the really big global players.''

Patrick Nolan, principal adviser for the New Zealand Productivity Commission, says any international comparison of prices is ''notoriously tricky'', as prices reflect, for example, differences in exchange rates, purchasing power and the quality of goods and services.

To get a better understanding of prices in New Zealand, the commission asked Victoria University professor Norman Gemmell to examine a World Bank report that featured data on 44 countries in 2005 (the most recent year data was available at this level).

Prof Gemmell showed that consumer prices for goods and services associated with investment appeared to be relatively high in New Zealand. This was especially the case for property, construction and utilities (water, gas and electricity). Passenger transport (excluding private motor vehicles) and alcohol and tobacco prices were also relatively expensive compared to other countries.

In contrast, prices for key exportable products from New Zealand were relatively cheap, especially beef, veal, lamb, fish and dairy products. Services largely provided by the Government, such as education, health and social protection, were also relatively inexpensive.

Last year's census showed the proportion of people who owned their home falling to just under half.

The decline in home ownership occurred across all age groups: 49.8% of people aged 15 years and over owned or partly owned the home they lived in, compared with 53.2% in 2006.

That's hardly surprising, given median house prices are 5.3 times (nearly 80%) the median income, according to the ninth Annual Demographia International Housing Affordability Survey, released last year. In comparison, in 1949, the average house in New Zealand cost 2.1 times the average annual salary.

The New Zealand Productivity Commission reported in 2011 on housing affordability, identifying as key factors limited land supply (particularly in Auckland), a slow and costly consent process, as well as the high cost of building materials (which roughly comprise 50% of the cost of building a home).

In a subsequent report, the Ministry of Business Innovation and Employment found building materials were about 30% more expensive in New Zealand than in Australia.(A Commerce Commission investigation into Auckland's timber supply market resulted in the High Court recently fining Carter Holt Harvey $1.85 million for a price-fixing arrangement with Fletcher Distribution Ltd, which blew the whistle on the arrangement to fix the price of framing timber at cost plus an 8% margin.)

As for our incomes?

Figures from Statistics NZ's Quarterly Employment Survey, as at March this year, show average ordinary-time weekly earnings rose 3.2% from the previous year to $57,158. The Ministry of Social Development Household 2013 Incomes Report, based on Statistics New Zealand data, shows the average weekly ordinary time wage rose 3.5% between June 2009 and December 2013.

Bill Rosenberg, New Zealand Council of Trade Unions policy director and economist, notes the average wage largely kept ahead of consumer price index inflation in the early part of the 2000s, and had a burst towards the second half of the decade, the biggest increase of the decade in real terms coming in the year to June 2009 when the average wage increased 2.7% after inflation.

However, through a combination of the global financial crisis, the increase in GST and other price increases, the ''real*'' average wage was, as of December, 2013 only 1.3% higher than it was almost five years earlier.

(*Mr Rosenberg uses the term ''real'' to describe an average wage that takes into account price increases; i.e. a wage's ''buying power''.)

Let's return to Papamoa Beach, where Ms Todd and her English partner, Matt Spittle (33), are into the fifth week of an extended road trip in a campervan they bought in Cromwell.

The couple are using the time wisely, checking out job opportunities as they weave through towns both small and large.

Cape Reinga is on the horizon. So, too, is Auckland and New Plymouth, where companies have expressed an interest in Mr Spittle's skills as a mechanical design engineer, for which he might expect to earn about $125,000.

On that whack, he'd be taking home a chunk more than had he stayed in High Wycombe, halfway between London and Oxford, where he was paid the equivalent of $85,000, roughly the same as Ms Todd.

''I was working at a private school in High Wycombe, halfway between London and Oxford. I've been teaching for 10 years so should get about $65,000 in New Zealand,'' Ms Todd says.

''In the UK, I was earning $85,000. That's quite a big difference.''

It seems the couple have a foot in both camps. Though keen to make a go of it in New Zealand, they do own a two-bedroom apartment in High Wycombe, which they bought for 160,000 (NZ$320,000).

''In Invercargill, you'd probably get a nice house for that,'' Ms Todd reflects, adding people are constantly asking her to compare New Zealand prices with those of the United Kingdom.

''My mum and dad have a holiday park business in Southland so they get a lot of people coming through complaining about food and grocery prices. I think because we are unemployed at the moment, we are being careful and just buying the budget brands.

''We paid 15 a month for a phone line and unlimited broadband. As far as my cellphone goes, I am actually spending less here. I just went for a pre-paid on Vodafone for $19 a month. I think I paid 35 in the UK, although that gave me 2000 minutes to call New Zealand as well as unlimited internet.

''Cars seem more expensive here. I bought a 2005 Nissan Note in Christchurch for $7000, which was about three times what I paid for a similarly sized one in England. I saw one in Invercargill going for $12,000.

''Still, car insurance is much cheaper here. Last year, I paid 600 (NZ$1200) to insure a little 2002 hatchback. And petrol was about $NZ2.70 per litre in England.''

And as Mr Equab, the economist, noted earlier, cost is only one computation in a broader analysis.

''Living overseas makes you realise how lucky we are to live in this country,'' Ms Todd said.

''Even if I do earn a bit less ... it's a lifestyle thing. A few days ago we went swimming in the sea. We wouldn't do that in England.''


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