In a break from historical patterns, cost increases have been of about the same magnitude for all households in recent quarters. That likely reflects the fact inflation has been very broad-based – the only component of the CPI that didn’t rise in Q3 was communication (just under 3 per cent of the total basket).
On average, households saw living costs rise 4.0 per cent in the year to September 2021. That’s obviously lower than the 4.9 per cent CPI print in Q3 and reflects how the HLPI is constructed slightly differently. For example, interest payments are not included in the CPI and, given recent OCR cuts, these have been at a very low level recently. But the super-low interest rate boon is over. The RBNZ has now lifted interest rates twice with ANZ Research forecasting more to come in order to combat surging inflation. But don’t expect cost pressures to moderate on an annual basis until well into 2022 – the inflation dragon is well and truly awake.
On paper it looks like everyone’s hurting from the same strong inflation currently. But when digging into the details it’s clear, for poorer households, high inflation is particularly hard to deal with.
Price lifts in essential items difficult for poor households
The biggest drivers of strong inflation in recent quarters have been housing, transport and food. Of the 2.2 per cent increase in consumer prices in the September quarter 2021, 0.7 percentage points came from housing (eg rents, building costs, council rates), 0.5 percentage points came from food, and transport added 0.5 percentage points – with 60 per cent of that from petrol alone.
These are all essential items - and that makes absorbing price rises more difficult for poorer households since a larger share of their expenditure goes towards essential goods and services.
It’s easier for higher-income households to cope with price rises because they can simply cut back on more discretionary spending such as not dining out as much. For a poor household whose budget can barely cover the essentials even when inflation is low, the choice quickly becomes: do I have lunch this week or pay the rent?