Household living costs are soaring for New Zealanders as annual price inflation climbs to a new record-high, latest figures show.
Consumer Price Index (CPI) figures released by StatsNZ on Thursday morning show annual price inflation (the difference between the December 2020 quarter and the December 2021 quarter), hit 5.9 percent, up from 4.9 percent in the previous (September) quarter.
It marks the biggest annual rise since the June 1990 quarter, when annual inflation reached 7.6 percent, StatsNZ said. The quarterly change in prices (December 2021 quarter compared to the September 2021 quarter), was 1.4 percent.
The Consumer Price Index (CPI) uses a set sample of goods and services (e.g. food, housing, transport and health) to measure price changes on a quarterly and annual basis.
Housing and household utilities, and transport were the biggest drivers of annual price rises, StatsNZ said.
Construction prices were up 16 percent annually, rental prices were up 3.8 percent.
Petrol prices were up 30 percent. In the December 2021 quarter, the average price of 1 litre of 91 octane petrol was $2.45, up from $1.87 per litre in the December 2020 quarter.
StatsNZ consumers prices senior manager Aaron Beck said the rate of price increases within the construction industry were much higher in 2021 than was seen in previous years.
"Construction firms have been experiencing supply-chain issues, higher labour costs, and also higher demand, which have pushed up the cost of building new houses," Beck said.
At the start of the COVID-19 pandemic, global fuel prices fell, but have since increased markedly.
"Fuel prices reached pre-COVID levels early in 2021 and have continued rising to record high prices," Beck added.
The annual increase in non-tradeables, also referred to as 'domestic inflation', was 5.3 percent.
Referring to Thursday's official inflation result of 5.9 percent as "very much up there", Infometrics principal economist Brad Olsen told Newshub the 5.3 percent annual rise in non-tradeables shows price pressures exist within the New Zealand economy.
"It's very difficult at the moment for supply to meet the level of demand that New Zealand has, therefore prices continue to push higher," Olsen said.
Pass-through of cost increases are expected to continue this year, particularly over the next two quarters.
Price increases of goods purchased less regularly, such as footwear, are also cause of concern for price-conscious Kiwis, who are facing higher everyday costs, such as food, rent and transport.
Interest rates are needed to take the heat out of inflation, but Olsen expects there may be an "uncomfortable squeeze" where both rising prices and rising interest rates hit at the same time.
"Effectively, what these numbers are telling us is that the supply of goods and services across the country can't keep up with the demand," Olsen said.
"We're either going to continue seeing these price rises, or we need to limit some of the spending we're seeing out there."
Infometrics is forecasting the Official Cash Rate, currently 0.75 percent, to rise by 50 basis points at the Reserve Bank February 23 review.
In an Economic Update released on Thursday, ANZ said the Official Cash Rate will need to rise to 3 percent by April 2023. "Inflation is too strong, and it's seeping into every corner of the economy," ANZ says.
Annual CPI inflation of 5.9 percent is nearly triple the Reserve Bank's target midpoint for price stability (between 1 and 3 percent), suggesting "things have got out of hand".
For the everyday Kiwi, it requires looking at ways to budget for rising costs.
"That uncertainty, that inability to plan budgets well, is going to be quite a blow to businesses and households," Olsen added.
