16 October 2013

Price increases hitting low incomes and people in Canterbury

“The sharp increase in the CPI this quarter, bringing it to a 1.4 percent increase for the year, is mainly in areas that hurt lower income families. In addition people in Canterbury are particularly hard hit”, says Bill Rosenberg, CTU economist. “The price increases for the year show housing costs as a big contributor. That is further confirmation of the need to treat affordable housing as an increasingly urgent need.”

Rosenberg estimates that CPI for the year is 0.2 to 0.3 percentage points higher for the 30 percent of households with the lowest incomes. “Rapidly rising housing costs are hard for all households to adjust to, but are a particularly large part of low income households’ expenditure”, he said. “On the other hand, higher income households tend to get more relief from low interest costs because they have higher mortgages.” Petrol and, in the last quarter, vegetables, are difficult costs for anyone to avoid but particularly for low income families.

Much of the inflation is occurring in Canterbury which had a 2.3 percent increase in CPI for the year compared with 1.1 to 1.3 percent in the rest of the country. It was particularly hard hit with housing costs which rose 7.0% for the year in Canterbury compared to 2.3 to 3.1 percent elsewhere. “Housing costs are rising quickly in all parts of New Zealand but Canterbury is suffering most,” Rosenberg says.

“We are still well below the Reserve Bank’s target level of inflation, but it when considering its actions on interest rates it also needs to take into account that costs in Canterbury and housing costs are significant drivers of the headline increase – not generalised inflation. It would be very unwise to hold back the whole economy by raising interest rates when the causes are local to Canterbury and specific to housing”, Rosenberg commented.

ENDS

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