Low inflation, low interest rates

18/07/2012

The CPI rose only .3% in the June quarter and the annual increase was only 1%.

That is very good news for households:

Hon BILL ENGLISH (Minister of Finance): Statistics New Zealand today reported that inflation rose 0.3 percent in the June quarter, annual inflation fell to 1 percent, its lowest level since 1999, and the CPI is increasing at its slowest rate in more than 12 years. At the same time floating mortgage rates, at around 5.75 percent, are at their lowest level in 45 years. This is saving a family with a $200,000 mortgage about $200 a week compared with what they were paying 4 years ago. These factors are helping New Zealand families save more, pay down debt, and get ahead.

. . . Hon Dr Nick Smith: What other factors are helping New Zealanders get ahead?

Hon BILL ENGLISH: Although inflation has been falling, the economy has continued growing moderately. This is reflected in real after-tax wages, which have increased by about 11 percent since September 2008. The components of this are that gross wages have increased 12 percent, after-tax gross wages have increased 20 percent, and inflation has been a bit over 8 percent, which leaves the 11 percent increase. This is a vast improvement on the situation in the 9 years to September 2008, when New Zealand’s real after-tax wages increased by only 4.4 percent in total.

Hon Dr Nick Smith: How does the current level of inflation, at a 13-year low, compare with what the Government inherited when it came into office in 2008?

Hon BILL ENGLISH: When the Government came into office in November 2008, annual inflation was running at 5.1 percent, rather than 1 percent, as it is today. That is because power prices had risen by 72 percent in 8 years, petrol prices were around 10 percent higher than they are now, and floating mortgage rates were at decade highs of almost 11 percent. The lower inflation we are now experiencing, combined with steady increases in after-tax wages, mean most Kiwi families are better off now than they were in 2008, and that is why they are able to reduce their debt and increase their savings.

In the late 1980s we were paying more than 25% for seasonal finance. That sounds like a wonderful incentive for savers but raging inflation took too much of the value from savings.

Low inflation and low interest rates are a much better combination for businesses and for savers.

 

 

 


Supply and demand stronger influence on price than GST

20/01/2012

The main contributer to the .3% fall in the Consumer Price Index in the December quarter was vegetables.

Statistics NZ prices manager Chris Pike said:

Vegetable prices fell 25 percent in the December 2011 quarter, causing a 2.2 percent fall in overall food prices. 

“The larger-than-usual fall for vegetables reflects a supply shortage in the three months to September,” Mr Pike said. “Basically, vegetable prices were higher than normal last winter, then fell to normal levels towards the end of the year. If vegetable prices had remained constant in the December 2011 quarter, the CPI would have risen 0.1 percent.”

Labour’s election pledge to take GST off fresh fruit and vegetables was never based on reason and these figures show supply and demand have a far bigger impact on price than tax.


CPI rise highest since 1990

21/10/2008

The Consumer Price Index rose 5.1% in the year to September – the highest it’s been since the year to June 1990.

Steep rises in the price of electricity, fuel, food and electricity were the major contributers to the increase.

Food prices rose 10.8% in the year to September, the highest increase since the year to April 1990 (which included an increase in GST from 10 to 12.5%)

All five subgroups recorded upward contributions to the annual increase, with the most significant contribution coming from the grocery food subgroup (up 12.8 percent). Within this subgroup, higher prices were recorded for cheddar cheese (up 61.6 percent), bread (up 16.5 percent), and fresh milk (up 12.6 percent).The remaining four subgroups recorded the following upward contributions: fruit and vegetables (up 17.9 percent), meat, poultry and fish (up 8.8 percent), restaurant meals and ready-to-eat food (up 6.3 percent), and non-alcoholic beverages (up 6.9 percent).

 

The 61.6% increase in the price of chedder cheese is huge, but when the increase for milk was about a fifth of that (12.6%) it can’t be all blamed on farmers.
 


On-farm inflation 9.7%

15/07/2008

A 9.7% increase in costs for sheep and beef farmers in the year to March 2008 is the highest rate of on-farm inflation since 1986-87 when input prices rose 13.2%.

The previous year the price of inputs increased 2.7%.

Major increases were:

Fertiliser, lime & seeds:         30%

Fuel:                                      23.5%

Feed & grazing:                     13.7%

Interest:                                 9.0%

Electricity                               7.2%

Local Govt. rates                    6.6%

Although the high dollar reduced the price of imported goods, fertilsier, lime and seed prices still increased by 30%. The price of fertiliser increased from $260 to $480, another 60%, between March and June, June but that is not included in these figures.  

Local Government rates increased 6.6 per cent. This was the second largest increase in 17 years and in the last five years the overall increase was 33 per cent, an average of 6.6 per cent per year. The overall cumulative increase over 5 years to March 2008 was 22.7 per cent, while over 10 years the increase was 37.0 per cent.

In comparison the CPI rate of increase over 5 years was 14.0 per cent, well below the 22.7 per cent for sheep and beef farm input prices

If interest is excluded, the underlying rate of on-farm inflation in 2007-08 was up 8.3 per cent.

Meat & Wool Economic Service figures for the annual on farm inflation percentage change in the past 10 years:

including interest        (underlying % change) excluding interest

1998 -99         -2.0%                                          0.9%

1999-00                 2.8                                                             1.4

2000-01                 5.2                                                             6.0

2001-02                 1.7                                                             2.8

2002-03                 3.6                                                             3.4

2003-04                -0.2                                                             0.0

2004-05                 4.1                                                             3.7

2005-06                 4.8                                                             5.2

2006-07                 2.7                                                             2.7

2007-08                 9.7                                                             9.8

 


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