Construction Costs Maintain Upward Pressure on CPI

Construction Costs Maintain Upward Pressure on CPI

The Consumers Price Index (CPI) increased by 0.5 percent in the September 2003 quarter, according to Statistics New Zealand. This follows no overall change in the CPI in the June quarter.

With prices rising by 2.0 percent, the housing group made the most significant upward contribution to the CPI for the fifth consecutive quarter. The increase in the September quarter also reflects higher prices for petrol, alcohol and electricity. These increases were partly offset by lower international airfares.

The rise in the housing group in the September 2003 quarter was mainly due to higher prices for the purchase and construction of new dwellings, and the impact of annual increases in local authority rates. Prices for the purchase and construction of new dwellings rose by 1.8 percent.

Construction prices have increased for 18 consecutive quarters, and the annual increase of 6.9 percent is the largest since the June 1996 quarter. Forty-four percent of surveyed construction prices rose in the September 2003 quarter, with 81 percent of surveyed builders citing rising costs of construction materials as a reason for all or part of the increase.

Local authority rates increased by 7.2 percent in the September 2003 quarter and made the same upward contribution to the housing group as the increase in purchase and construction of new dwelling costs. Local authority rates are surveyed annually, in line with the setting of rates by local and regional councils.

Household operation costs rose by 0.6 percent in the September 2003 quarter, mainly due to an increase of 3.2 percent in electricity prices. The latest rise in electricity prices follows an increase of 1.8 percent in the June 2003 quarter. Electricity prices are now 6.5 percent higher than a year ago, due to widespread tariff increases.

Tobacco and alcohol prices rose by 1.3 percent in the September 2003 quarter, mainly driven by the increase in excise duty on alcohol on 1 June 2003.

Transportation prices fell 1.6 percent in the September 2003 quarter, mainly driven by a 12.6 percent fall in the price of international airfares. Partly offsetting this fall was a 7.1 percent increase in petrol prices.

On an annual basis, the CPI increased by 1.5 percent. The most significant contribution to the annual change came from the 6.9 percent rise in prices for the purchase and construction of new dwellings.

Brian Pink

Government Statistician

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