What’s going on in the economy

Every week we hear about the cost of living crisis and critical going-ons in the economy.

Last week, Stats NZ confirmed food prices had hit a 14-year-high. This week, the Real Estate Institute confirmed a record drop in house prices. Next week, the Reserve Bank will update the official cash rate (OCR).

A lot of things happening this year are unprecedented. Inflation hit a 32-year high in July. It can be easy to lose sight of everything that is going on – so here are five charts to help you understand what is happening.

Mortgage rates

Interest rates are going up – and that affects people who own a house and pay a mortgage. A higher interest rate means the cost of borrowing is higher.

Reserve Bank data shows floating mortgage rates dipped during the

Covid-19 pandemic, reaching an average of just 4.5% in June 2021.

Sense Partners economist Shamubeel Eaqub said this was the lowest that floating rates had been in living memory.

But, rates have now shot up again. Last month, the average floating rate was about 7% – a level not seen in more than a decade. Increased interest rates mean homeowners pay more. ‘‘That creates a big shock in what money you have available to spend,’’ Eaqub said.

Food

The cost of food hit a 14-year high in New Zealand this month.

From October last year to this year, the cost of food went up by 10.1%, according to Stats NZ.

Barn-raised eggs, cheddar cheese and two-minute noodles have had the biggest increases for grocery items. The average cost for 1kg of lettuce is now $6.43, up from $5.39 a year earlier and $3.64 the year before that.

Inflation and wages

It is not just food – prices are rising for almost everything.

In July, annual inflation hit 7.3% – a level not witnessed since 1990. Another update in October showed annual inflation remained at 7.2%.

Annual inflation started going up in 2021 – and at the same time, people’s income, on average, has gone up too. But, the yearly growth of people’s income – through salaries or wages – was only 3.7%, below the rate of inflation. ‘‘That’s why it feels like we are worse off,’’ Eaqub said.

The trend can be seen in data from June to September this year.

During that time, inflation went up by 2.2%, while wages increased on average by only 1.1%.

Housing

While inflation and interest rates are going up, house prices have done the opposite.

Data from valuation company Quotable Value (QV) shows the average price of a New Zealand home has dipped from $1,063,700 in January to $951,000 last month – a drop of 10.6% over 10 months.

While house prices have fallen, they remain above where they were immediately before the pandemic.

In March 2020, the average house price was $748,000, according to QV.

Meanwhile, the Real Estate Institute released its data for October this week, which shows sales dropped by 34.7% compared to the same month the year before.

Gross domestic product (GDP) GDP is a snapshot of how the economy is performing, according to Stats NZ.

Auckland University economics professor Robert MacCulloch said GDP in New Zealand was growing, and the country had not fallen into a recession.

GDP increasing was a good thing, MacCulloch said. It meant the overall average income for workers and businesses was holding up. ‘‘We’re roughly earning if anything a bit more than before the crisis,’’ he said.

Since mid-2021, annual GDP growth for New Zealand has been increasing, hovering about 5%.

Annual growth did drop to just 1% for the year ending in June, but quarterly growth between March and June was 1.7% – which was higher than Australia, the US and the OECD total.