Inflation is theft

Low inflation is boosting household spending power:

Low inflation is helping New Zealand households get ahead, with wages on average continuing to rise faster than the cost of living, Finance Minister Bill English says.

Inflation was only 0.4 per cent for the year to March 2016, according to figures released by Statistics New Zealand today. Inflation for the March quarter was 0.2 per cent. 

Much of quarterly increase was driven by cigarettes and tobacco, which rose 9.4 per cent following increase in excise duty in January. Food prices were up 1.2 per cent in the quarter, but were down 0.4 per cent over the whole year.

Lower oil prices contributed to the low cost of living increase. Petrol prices fell 7.7 per cent in the first three months of 2016, following a 5.7 per cent fall the previous quarter.

“We are in the unusual situation of having solid economic growth, more jobs and rising wages at the same time as very low interest rates and inflation,” Mr English says. “This is helping New Zealand families get ahead.

“Households with mortgages have the double benefit of low cost of living rises and lower mortgage servicing costs, which will be particularly welcome in regions with increasing house prices.

“Since the start of 2012 the average annual wage has increased by more than 10 per cent to $57,800, considerably faster than inflation which has been only 3.1 per cent.”

An additional 175,000 jobs have been created over the last three years, with a further 173,000 expected by 2020.

“Overall, New Zealand is doing well and New Zealanders are reaping the benefit of a growing economy.”

When Don Brash was governor of the Reserve Bank he called inflation theft and it is, eroding the real value of money and investments.

Now, wage-rises outpacing inflation combined with low interest rates are giving households more spending power.

When people seek government help it usually requires more spending.

The government’s concentration on keeping a tight rein on its finances doesn’t usually get much credit but it is one way it can influence inflation and in doing so it protects and enhances the value of what people earn, invest and save.

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