Inflation highest in over decade

The consumers price index rose 2.2 percent in the September 2021 quarter, the biggest quarterly movement since a 2.3 percent rise in the December 2010 quarter, Stats NZ said today.

Excluding quarters impacted by increases to GST rates, the September quarter movement was the highest since the June 1987 quarter, which saw a 3.3 percent rise.

Annual inflation was 4.9 percent in the September 2021 quarter when compared with the September 2020 quarter. This was the biggest annual movement since inflation reached 5.3 percent between the June 2010 and June 2011 quarters.

Excluding periods impacted by changes to GST rates, the September 2021 annual inflation was the highest since it reached 5.1 percent in the September 2008 year.

The quarterly price rises were widespread, with 10 of the 11 main groups in the CPI basket (such as food and transport) increasing in the September 2021 quarter compared with the June 2021 quarter.

The main drivers were housing-related costs, such as construction of new houses and local authority rates.

Prices for construction of new houses were up 4.5 percent for the quarter, and 12 percent for the year.

“Both supply-chain challenges and high demand are pushing up the cost of building houses,” consumer prices manager Aaron Beck said.

“Construction firms reported that it is hard to get many materials needed to build a house, and that there are higher labour and administration costs.”

Wages in the construction industry, as measured by the labour cost index previously increased 3.1 percent in the year to the June 2021 quarter (the most recent quarter available). This was due to high demand for labour in the construction industry in the last year.

Labour market statistics: June 2021 quarter has more information about the demand for labour.

Prices for building new houses in the CPI are obtained by surveying construction companies that build standard-plan houses. The inflation of existing house prices is not included in the CPI as household-to-household transactions are out of scope. Land purchases are also excluded as they are considered to be an investment and therefore out of scope.

Local authority rates and payments rose 7.1 percent in the September 2021 quarter. This was higher than the 3.1 percent rise in the September 2020 quarter.

“Many councils set smaller than usual rate increases in 2020 to alleviate cost pressures on rate payers due to COVID-19,” Mr Beck said.

“In 2021, councils faced increasing revenue and cost pressures.”

Rates are captured once a year in the September quarter, as this is when ratepayers see price changes set by councils.

Vegetable prices rose 19 percent, making it the second largest upwards contributor to inflation. This was influenced by higher prices for tomatoes, lettuce, and broccoli.

Transport prices rose 4.2 percent in the September 2021 quarter, due to higher prices for petrol, as well as international and domestic airfares.

Petrol prices rose 6.5 percent in the quarter and 22 percent for the year. The annual increase is the highest since the September 2007 quarter to 2008 quarter.

Global fuel prices fell over early 2020 as the COVID-19 pandemic took hold. Overall, global fuel prices have risen steadily since then.

The weighted average price of a litre of 91 octane petrol was $2.27 over the quarter, up from $2.13 in the June 2021 quarter, and $1.86 in the September 2020 quarter.

Partly offsetting the quarterly rise in fuel, new car prices fell 2.7 percent.

“We saw some specials for new cars during the quarter. There was also a small impact from the clean car discount for electric vehicles following a new policy introduced on 1 July 2021,” Mr Beck said.

Annual non-tradable inflation at 4.5 percent

Domestic, or non-tradable inflation, was 4.5 percent in September 2021 compared with September 2020.

Higher prices for the purchase of housing, rentals for housing, and local authority rates and payments were partly offset by telecommunications services.

Non-tradable inflation measures goods and services that do not face foreign competition. It shows how domestic demand and supply conditions are affecting consumer prices.

Impacts of COVID-19 on September 2021 quarter

The change in COVID-19 alert levels on 17 August 2021 had minimal impact on price collection for the CPI.

However, we have reweighted some parts of the CPI to better account for changes in spending due to the impacts of COVID-19. We reweighted international and domestic airfares, and overseas accommodation costs prepaid in New Zealand. As part of the reweight, the weights of all other items were updated to account for these changing weights.

Impacts of COVID-19 on methodology for the September 2021 quarter CPI has more information about these impacts and changes.