Government cuts to petrol excise and intervention in the grocery and building supplies markets haven’t been enough to slow the inexorable rise of inflation, and today interest rates will follow the cost of living upwards
Analysis: In this land of milk and honey, Onehunga truck driver Antonio Hemopo and his family stop at the dairy chiller at Pak’nSave. They groan audibly. “Look at the price of milk,” he murmurs.
That price rose 8.2 percent in the year to February, and Newsroom analysis of supermarket prices suggest they have remained at those levels through to mid-April – and through to the release of the newest Stats NZ food and rent inflation figures today.
“Everything has gone up,” says Hemopo, a 40-year-old father of four. “When you have a budget that went so far, now you only get half as much. Milk, bread, all the essential stuff has gone up.
“I think it’s hard on everybody. We’re making cuts on other bills so we have enough money to get food.”
The publication of food and rent inflation numbers sets the stage for this afternoon’s Reserve Bank Monetary Policy review. The bank’s remit requires it to keep inflation between 1 percent and 3 percent over the medium term, and it’s fast losing any grip on that. Consumer prices rose 5.9 percent last year, and CPI figures out next week are expected to show that gaining speed.
The US Labor Department has already released its quarterly consumer price statistics, showing prices increased at the fastest rate in 16 years in March as Russia’s war against Ukraine boosted the cost of gasoline to record highs, resulting in annual inflation rising at its fastest pace since the early 1980s. And the unemployment rate there has dropped to a fresh two-year low of 3.6 percent.
That sets the stage for the Federal Reserve to follow NZ’s lead by raising interest rates next month, probably by a hefty 50 basis points.
12 month rolling average food and fuel prices
In New Zealand, the Reserve Bank says it has one, preferred tool for slowing inflation: hiking interest rates. The official cash rate is 1 percent, and the bank’s monetary policy committee is expected to raise that by at least 0.25 percentage points today, and many economists believe it will hike it by 0.5 points.
Mortgage lenders are already anticipating that. Floating rates have now topped 5 percent at most banks, for the first time since 2016-18, and five-year rates have soared beyond 6 percent.
Yet there may be light at the end of the spiralling tunnel, with signs of improvement to the global supply chain.
FreightWaves is a company that specialises in supply-chain analysis. Chief executive Craig Fullers argues that retailers in the US and around the world appear to have bought up too big, and are sitting on unusually large inventories. Car lots are filling up; demand for trucking is falling quickly. International shipping rates seem to be coming down.
Supply-chain problems may disappear into the rear view mirror, leaving a glut of trucking and perhaps shipping capacity.
US economist Paul Krugman reckons this will remove one reason for high inflation. And President Joe Biden’s big petroleum release, supported by New Zealand and other members of the International Energy Agency, is helping bring down fuel prices.
Krugman says the quarterly CPI figures will have missed a downward turn that began in late March and is now accelerating. Inflation will probably fall significantly over the next few months, he predicts. NZ economists, too, are predicting inflation will peak about now, then begin dropping.
“Surging gasoline prices accounted for half of March’s price rise, but it now appears that the world oil market overshot in response to Russia’s invasion of Ukraine,” he writes today. “A lot of Russian oil is probably still reaching world markets, and President Biden’s million-barrel-a-day release from the Strategic Petroleum Reserve makes up for much of the shortfall. As of this morning, crude oil prices were barely above their pre-Ukraine level.”