Price-rise pressures mount

Consumers are overdue for an increase in the prices they pay.

The New Zealand Institute of Economic Research (NZIER) has released its quarterly predictions for December.

Principal economist Christina Leung said, for the past year, it had been noticeable that business margins were becoming weaker.

‘‘Costs continue to rise for running a business, but businesses are not feeling they can put up their prices enough to cover those costs. There is a decline in profitability as a result.’’

She said it seemed conditions were right for price rises across the board. Yet inflation has been running at historic lows, and is only at 1.9 per cent now.

Businesses had previously said they expected their profitability to eventually improve, that was no longer the case.

‘‘It’s interesting why margins have remained so weak for so long – you’d expect by now prices would already be rising, given the capacity pressures,’’ Leung said.

‘‘While we have seen signs of easing consumer demand, it’s still fairly solid. They should be able to pass on these costs in the form of higher prices.’’

She said there were factors moderating that. Consumers now have more access to technology, allowing them to easily compare retail prices, and they have instant access to cheaper overseas suppliers.

Economist Shamubeel Eaqub, of Sense Partners, said New Zealand firms were stuck in a ‘‘Mexican standoff’’.

‘‘Business margins are under pressure but they are scared to raise their prices because they don’t want to spook customers.

‘‘People have been predicting that [price rises] were going to happen soon for a long time but I don’t see any sign yet that customers are any less price sensitive than they used to be. If a business raises prices, their competition will slash theirs.’’

ASB chief economist Nick Tuffley said wage rises and fuel prices had put pressure on businesses over the past year. There were also increasing compliance costs and the effects of regulation.

Businesses told confidence surveys that their perception of costs and expectation of future increases did not match the prices they were able to charge their own customers.