Inf lation only low if you can afford a few treats

You may be pleased to learn that, whatever you might think, the cost of living is hardly going up at all. Just like the past five years, inflation has – with a brief exception – remained stubbornly below 2 per cent. According to Statistics New Zealand, the cost of the goods and services which normal households regularly consume rose a measly 1.5 per cent over the last year, exactly as the Reserve Bank expected.

It probably always feels like the cost of living is going up by more than the statisticians estimate. But now more than before, it appears to be a clearer pattern that for many that feeling has merit.

In the last 12 months, the prices of telecommunications hardware and audiovisual equipment (phones and TVs) have fallen substantially. So has the price of subscription television, as Sky TV fights for survival against new, more nimble competitors, by slashing prices.

For people who can afford the latest technology, that’s terrific news, and there is more good news for anyone who can afford to treat themselves.

While the rising price of oil may have slowed the recent trend, international airfares have been falling for years. Since the global financial crisis, it’s been a tremendous time to be a Kiwi with discretionary spending power. If you have owned a home since the last recession and held down a wellpaid job, you have arguably never had it so good.

But inflation to one household is not the same as inflation to another, and the latest figures spell out the problems faced by people living week to week.

Petrol prices rose sharply in the quarter as the NZ dollar weakened at the same time as oil prices firmed. Rents are up, as are insurance costs, as are electricity prices. Overall, petrol and housing (including utility bills) made up well over half of the overall increase in inflation of the last year.

Unavoidable items are creating unavoidable pressures on households, which has a disproportionate impact on those who typically have nothing left over just before pay day.

While officials at Statistics NZ try not to step into political scraps over what official measurements mean, a pricing manager summed it up succinctly in the official release: ‘‘New Zealanders are paying more to keep their homes running.’’

This story is hardly a new one. For several years Statistics NZ has been publishing analysis of the inflation figures, estimating where the impact was hitting, focusing on high and low-income households as well as Ma¯ ori and pensioners.

In blunt terms, inflation has been much higher for those on lower incomes than it has been on those on higher incomes. Globalisation has made many goods and services much cheaper, but in areas of little competition, prices have continued to rise.

This now appears to be coming to a head. While the industrial action seen in recent weeks could be dismissed as isolated gripes, there are expectations that there is more to come.

It is telling that even bank economists are validating what appears to be growing discontent among lower-paid workers. ‘‘It’s been pretty tough going for a lot of those people at the lower end of the income scale,’’ ASB senior economist Mark Smith said in recent days. ‘‘The New Zealand economy’s doing very well, but a lot of people are asking, ‘Where’s the payoff for me?’ ’’

Smith’s comments were in relation to the bank’s expectation that wage inflation will in the next few years reach its highest level in a decade, driven by Government moves on minimum wage and industry-wide pay agreements. But when bank economists join the debate it suggests they see the issue as more widespread than we have seen so far.

Expectations are clearly high, with the New Zealand Nurses Organisation unable to convince its membership to accept the Government’s offer. After persuading members to accept more modest increases over the past decade, unions may be facing something of a backlash.

Acting Prime Minister Winston Peters has delivered an almost pleading message to nurses and other public sector workers that it will take more than a single Budget to address issues he has sought to blame on the former government.

The Government is in a doubly difficult position, having spent years in Opposition building expectations. First and foremost it has self-imposed Budget rules it is determined to keep to and which look achievable right now, but are based on the Treasury’s hope that the economy continues to perform. Whether there is any justification for the recent fall in business confidence, if wage expectations spin out of control then the mood may darken further.

As much as it might like to throw money at the problem, doing so may simply make that problem worse over time.

It’s been pretty tough going for a lot of those people at the lower end of the income scale.