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Inflation rate hits 32 year high (Photo: RNZ/PHOTO NZ)
Inflation rate hits 32 year high (Photo: RNZ/PHOTO NZ)

The BulletinJuly 19, 2022

What’s driving inflation?

Inflation rate hits 32 year high (Photo: RNZ/PHOTO NZ)
Inflation rate hits 32 year high (Photo: RNZ/PHOTO NZ)

The breadth of inflationary cost increases in New Zealand has economists worried, while a new Australian report points to corporate profit, not wage growth, as the driver there, writes Anna Rawhiti-Connell in The Bulletin.


Triple hike to official cash rate (OCR) could be on the cards 

Well, Infometrics chief economist Brad Olsen was the only one to call it correctly. Inflation hit 7.3% yesterday which, as noted in yesterday’s Bulletin, is the rate Kiwibank chief economist Jarrod Kerr said would move markets and flow into retail interest rates. The rate is the highest it’s been in 32 years, so back around the time of the 1990 Commonwealth Games in Auckland, and this moment. I’ll point you to an updated version of a piece by Kiwbank’s Mary Jo Vergara – a brief history of inflation in New Zealand – for some actual economic context. ANZ and ASB economists say the Reserve Bank may hike the OCR by 75 basis points to 3.25% next month.

The spread of inflation and number of drivers will be biggest concern to Reserve Bank

Olsen said price rises for food, fuel and rent “lived up to expectations” but that it was the rise in the prices of locally-produced non-tradable goods and services (as opposed to “tradable” where prices are largely set overseas) that was the biggest concern. The increase was largely driven by rising rents and construction costs. The price of a new build house is up 18% on this time last year. The next largest contributor was transport costs. Petrol prices were up 32% in the year to the June 2022 quarter, the largest annual increase since the June 1985 quarter. Diesel prices increased 74% over the same period.

Australian report finds profit, not wages, driving inflation

Newsroom Pro’s Jono Milne has done some digging on fuel prices and found that as international crude oil prices have dropped, an unprecedented 60c in every litre of petrol or diesel is going to the fuel retailers. There was an interesting report out of the Australian Institute yesterday sent to me by a Bulletin reader (thank you, Brian). The report challenges the narrative in Australia that a “wage price spiral” is driving inflation. It’s a chunky read if you’re interested, but the topline finding is that rising corporate profits are a major factor in Australia’s escalating inflation. The Nobel prize-winning economist Joseph Stiglitz is in Australia at the moment and says a windfall profits tax is a “no-brainer”. First Union’s Edward Miller has looked at the data here, and while there is less data available, Treasury corporate tax data showed that in the year to March 2022, corporate profits in this country had spiked by 39%.

Rental accommodation supplement based on six-year old data

There are calls for the government to provide more help for those who are really struggling. The Salvation Army’s Ian Hutson told RNZ’s Checkpoint last night that the Ministry of Social Development’s accommodation supplement payments are based on rent data that is about six years out of date. Median weekly rents have risen from $390 in July 2016 to $580 in April 2022. A survey of 4,500 students found that on average, students living in a shared flat are putting 54% of their income towards rent. Education minister Chris Hipkins responded to that by pointing out that student allowances had been increased 58.1% between 2017 and 2022, which compared to 3.6% between 2012 and 2017.

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