New Zealand's sky-high inflation isn't being boosted by company profits, a new report suggests.
The country's consumer price index peaked at 7.3 percent in June 2022, its highest level since 1990. It's fallen by slower than expected since then, dropping to 6.7 percent in March.
While that's the 14th-lowest rate in the OECD, the Reserve Bank has said it would only decline to about 6.1 percent by the end of this year - well below its target range of between 1 and 3 percent.
However, an analysis by consultancy firm Sense Partners, commissioned by Business NZ, said there was no evidence excessive company profits - known as "greedflation" - were to blame for the persistently high inflation.
With concerns in the likes of the EU that greedflation was driving consumer prices, Sense Partners described the phenomenon as an "imported narrative".
Looking at last year, when inflation was highest, profit margins outside of the financial sector were 12.7 percent, according to the analysis of Statistics NZ data. That was up slightly from 2020 but below their level of 15 percent in 2017.
"By decomposing price increases for the nonfinancial sector of the economy, we find that 75 percent of the inflation in the three years to 2022 has come from the increase in the cost of inputs (of goods and services) and the remainder is evenly split between wages and profits," the report concluded.
New Zealand's inflation surge initially reflected the economic fallout from COVID-19 and the Russia-Ukraine war, both of which led to supply chain bottlenecks and subsequent food price rises.
"The data available to us shows that recent inflation in New Zealand has been largely driven by input costs, not wages or increasing profit margins," the Sense Partners report said.
"International experiences of increasing profit margins through increased mark-ups are not well supported in the New Zealand experience.
"This indicates caution in importing international narratives without local context."
Analysis of financial firms, however, would "require more complex analysis, as the volume of services consumed is not conceptually the same, which is outside the scope of this paper", the report said.
The Government has been urged by the Green Party to levy a windfall tax on banking profits, which remained at record highs despite the rocky economic outlook.
