ASB comments on March inflation figures
Household living costs rose by 6.7% in the year to March, the latest inflation figures show.
The Consumer Price Index figures were released on Thursday morning, and Statistics New Zealand confirmed that annual inflation eased to 6.7% over the March 2023 quarter. On a quarterly basis, inflation grew by 1.2%.
Commenting on the latest CPI release, ASB Bank chief economist Nick Tuffley (pictured above left) said that although annual inflation had dropped from 7.2% over the previous two quarters (September and December), historically, it was still strong.
“It’s still pretty high…if we ignore the recent period of being a little above 7%, you’d have to go back to the mid-1990s to [see] a higher figure,” Tuffley said.
Statistics New Zealand consumer prices senior manager Nicola Growden (pictured above right) confirmed that food was the biggest contributor to the annual inflation rate, due to rising prices for veggies (up 22%), ready-to-eat food (9.7%) and milk, cheese and eggs (up 15%). Housing and household utilities were the second-largest contributor.
“Respondents reported that higher costs of materials and labour continued to drive the increase of building a new home,” Growden said.
Earlier this week, Statistics New Zealand confirmed that food prices had gone up by 12.1% over the 12 months to March, driven by higher prices for grocery foods, of which the biggest contributors were eggs, potato chips and 6-pack yoghurt.
In an Economic Forecast Update, released on Tuesday, ASB Bank estimated that rising living costs would add an extra $150 per week to household costs over 2023.
Ahead of the official March figures, ASB Bank had forecast annual inflation to reach 7.2%, and the Reserve Bank had forecast 7.3%
Speaking to NZ Adviser after the figures were released, Nick Tuffley said that overall, the March figure was “weaker than expected”.
Weakness was most common in the part of inflation referred to as “tradeable inflation” – things that are readily imported or exported, exposed to the global environment and the exchange rate, he said.
The data provided an early sign that interest rate rises are “starting to have the desired effect”.
“We’re seeing some early signs that supply chain cost impact is abating, we know that there’s been more caution on the consumer side coming through (particularly around durables goods) and anecdotally, there has been large inventory built up and signs of discounting,” Tuffley said.
Economists have previously noted the risk of inflation becoming harder to contain, as Kiwis’ expectations of future inflation were “uncomfortably high”, and that non-tradable inflation, such as services and wages, tended to be “quite sticky”.
Tuffley said that inflation pressures around housing (e.g. construction and rents) had started to cool, but that inflation on other non-tradeables is likely to be more persistent.
“We’re mindful there could be some delayed impacts from the cyclone on building-related costs, but beyond the housing-related parts of it, domestic inflation remains quite strong.”
Following the latest CPI figures, Tuffley said ASB continued to expect the Reserve Bank to lift interest rates in May.
“What we’ve seen today does make it a more marginal call, but we think the Reserve Bank will want to be really convinced if it’s going to stop lifting interest rates at this point,” Tuffley said.
The bank would keep watch of unemployment and wage data, available in early May, the Reserve Bank quarterly inflation expectations report and the May budget, to get a further gauge on where inflation is tracking, he said.
The Consumer Price Index (CPI) measures how price changes affect the average consumer. It looks at goods and services people spend money on and records the quarterly and annual price change.
