Higher Inflation In March Quarter

The consumers price index (CPI) rose 0.8 percent in the March 2020 quarter influenced by rising prices for cigarettes, and rentals for housing, Stats NZ said today.

The annual inflation rate was 2.5 percent, the highest since the September 2011 quarter when it was 4.6 percent. This was driven by domestic inflation, which remains above 3 percent.

“Measures to slow COVID-19 by closing non-essential businesses and telling people to stay at home from midnight 25 March, didn’t impact so much on the normal collection of prices this quarter,” consumer prices senior manager Paul Pascoe said.

Only the last week of March required an alternative approach to collect weekly food and fuel prices.

“The CPI is a quarterly measure and not all data is collected weekly. This means that some parts of the CPI may not fully capture COVID-19-related price movements later in the quarter,” Mr Pascoe said.

The annual tobacco tax increase on 1 January 2020 lifted cigarette and tobacco prices 11 percent this quarter. The tax increase is the fourth of four consecutive excise duty increases announced in the 2016 Budget. The Government increased excise tax on tobacco by 11.5 percent (see Tobacco excise increase on 1 January 2020), but not all products showed the full impact of the tax change in their prices.

“The average price of a pack of 25 cigarettes was $41.89 in March, up from $37.51 in December,” Mr Pascoe said.

“One cigarette now costs about $1.70 compared with $1.15 at the start of 2016. Ten years ago cigarettes cost about 54 cents each.”

Excluding the rise in cigarettes and tobacco, inflation rose 0.5 percent in the March 2020 quarter.

Rents up in year to March

Rents rose 1.2 percent in the March 2020 quarter, and 3.7 percent for the year. Rent accounts for around 9 percent of household expenditure, making it the highest-weighted item at the subgroup level in the CPI basket.

In the year to March 2020, Auckland rents increased 2.1 percent, Wellington rents increased 5.7 percent, and Canterbury rents increased 2.0 percent. The North Island excluding Auckland and Wellington increased 5.8 percent, and the South Island excluding Canterbury increased 5.3 percent.

“Around the country we’ve seen annual rent price increases above 5 percent everywhere except Auckland and Canterbury. Rent prices in those two areas are more in line with the overall rate of inflation,” Mr Pascoe said.

Strong rental inflation in recent quarters reflects several factors, including tight rental markets in parts of the country. It also reflects the introduction by Stats NZ in the June 2019 quarter of a new way of measuring rent prices. The new method uses the Ministry of Business, Innovation and Employment’s tenancy bond dataset to estimate price change and replaces a sample survey of landlords, improving data quality and reducing burden for respondents. The new method tends to show larger rent price movements than the previous method. The quarterly movements from September 2019 quarter onwards fully reflect the new method, while annual movements reflect three of the four quarters based on the new method.

New methodology for rental prices in the CPI

has more information on the new method for measuring rent prices.

While the Government announced a freeze to residential rent increases on 23 March, this had minimal impact on the data in the March 2020 quarter.

See

COVID-19: Rent freeze and tenancy terminations

for further information on the freeze in residential rent increases.

Not all rents go up year to year, so the actual change felt by an individual renter may differ from the average.

Falling prices for airfares and petrol drive down transport costs

Transport costs fell 1.7 percent in the March 2020 quarter, mainly influenced by price falls for international airfares and petrol.

“Prices for international airfares fell 11 percent in the March quarter. International airfares typically rise in the December quarter and fall in the March quarter,” Mr Pascoe said.

“While there have been reports of higher prices for flights associated with the COVID-19 pandemic towards the end of March, general price falls throughout the rest of the quarter and the timing of collecting data have still resulted in a sizeable fall.”

Petrol prices fell 2.3 percent in the March 2020 quarter after a 1.6 percent rise in the December 2019 quarter.

The average price of 91 octane petrol was $2.09 a litre this quarter, down from $2.14 last quarter.

“After rising slightly in January, petrol prices fell in both February and March,” Mr Pascoe said.

“By the last week of March, the petrol pump price was about 9 percent lower than the March quarter weighted average price.”

Domestic airfares also fell, down 1.1 percent.

Annual domestic inflation tops 3 percent for third quarter in a row

Domestic or non-tradable inflation increased 3.4 percent in the year to March 2020. This is the highest annual increase in non-tradable inflation since the September 2011 quarter.

“In the September 2011 quarter domestic inflation was 4.5 percent. This was influenced by a GST increase in October 2010,” Mr Pascoe said.

Annual domestic inflation has been above 3 percent for three quarters in a row, up 3.1 percent in the year to December 2019, and 3.2 percent in the year to September 2019.

The latest annual increase in non-tradable inflation was influenced by higher prices for rents, cigarettes and tobacco, construction of new houses, and local authority rates.

Non-tradable inflation measures goods and services that do not face foreign competition. It includes housing-related costs such as rent, construction, rates and electricity, as well as insurance, restaurant meals, and many services.

Minimal impact of COVID-19 on data collection

The COVID-19 pandemic and subsequent alert level 4 response had a minimal impact on data collection in the March quarter.

Impacts of the COVID-19 lockdown on the March 2020 quarter CPI and March 2020 FPI

has further details on the effect of COVID-19 on data collection in the March 2020 quarter.

COVID-19 Alert System timeline

2 February 2020:

NZ Government places entry restrictions into New Zealand on all foreign nationals travelling from or transiting through mainland China.

19 March 2020:

New Zealand’s borders closed to almost all travellers, except for returning New Zealanders.

23 March 2020:

New Zealand enters COVID-19 alert level 3 (Restrict)

25 March 2020:

New Zealand enters COVID-19 alert level 4 (Eliminate)

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