19 Oct 2021

Inflation shock: Rising prices likely to stay for a while - economist

10:31 am on 19 October 2021

Claims a spike in inflation would be short-lived are being discarded as economists now warn rising prices are here to stay.

Woman shopping with trolley, holding receipt of grocery items, with food in handing, checking prices.

Photo: 123RF

Inflation has hit its highest level in a decade with consumer prices rising 2.2 percent in the three months to September.

The annual rate, at 4.9 percent, far outstripped analysts' forecasts.

Food prices increased 3.1 percent and transport 13 percent in the three months to the end of September compared to the same quarter last year.

The average price of a litre of 91 petrol was $2.27 compared to $1.86 in the same quarter last year.

Infometrics principal economist Brad Olsen said inflation was hitting all aspects of household budgets and and that was unlikely to change in the near future.

"Households will be having to look across their entire household budgets to try and figure out how to try and pay for these ever increasing costs," he said.

The cost of building a new house is up 12 percent for the year.

Construction Industry Council executive director Graham Burke said the rising costs meant businesses and clients were apprehensive about entering fixed cost contracts.

For those already in such contracts it was even more problematic.

"It is putting real incredible pressure on margins and when you look at some of the increases that we are seeing, there's just no way that those margins are built into jobs.

"Some of the fallout could potentially be jobs not being able to be completed, businesses running at a loss and it just depends on the size and the number of those contracts as to how much people can cope with them," he said.

The hardest hit from price increases are low-income families.

He Korowai Trust chief executive Ricky Houghton said there were families in the Far North living on as little as $21,000 a year.

Their location put them at a particular disadvantage.

"There's no public transport up here, so we have to rely on petrol, it's an essential commodity, there's the fact that rents are going up, everything is going up and there is no buffer, there is no headroom for families anymore," he said.

He wants an extra tax rebate for low-income households.

When asked what the government would do to protect low-income families the Prime Minister Jacinda Ardern said work was already being done to raise incomes.

"Be it through the levers that we have: minimum wage, as an employer ourselves, through some of the targeted tax credit regimes that we have and we will continue to do that because we are very focused on our cost of living for low income households."

Factors like international shipping and oil prices were out of the government's control, she added.

All eyes will now be turning to the Reserve Bank which has already indicated a slow rise of the Official Cash Rate to try and keep inflation at bay.

This will affect interest rates and therefore mortgage repayments, and either way it will hit New Zealanders' back pockets.