Our take on the latest Consumers price index (Fri 22 Jan 2021)
Inflation up to 1.4%pa
Purchase of new housing up 3.3%pa
Accommodation and tourism prices rising
The key numbers...
- Inflation held steady at 1.4%pa in the December 2020 quarter, but it was considerably higher than market expectations (of 1.0%pa) as a return towards more normal economic conditions brought more usual pricing pressures back.
- Households are facing higher costs for some core items, with prices for furniture and furnishings up 4.6%pa, telecommunications equipment up 6.2%, small electrical household appliances up 3.9%, and second-hand car prices up 5.8%.
- Lower levels of discounting were noticeable for furniture and furnishings.
- Construction costs have picked up, with the 1.3% quarterly rise in the purchasing of new housing the largest in just over two years, taking the annual price increase to 3.3%. Higher volumes of residential construction in the North Island drove this rise, with costs outside Auckland and Wellington up by 5.6%pa.
- Domestic accommodation prices rose 6.2%pa in December – a strong boost. The reintroduction of Auckland to Sydney flights, at a much higher price than pre-pandemic, helped push overall inflation higher too.
Consumer price inflation
Annual rate
...and our reaction
- Prices continue to rise at a faster rate than expected, caused by supply chain issues, capacity constraints, and a return to more usual levels of economic activity.
- This higher inflation rate should all but close the door on any further easing in monetary policy in the first half of 2021. Barring any unexpected reversal in our economic recovery, a negative OCR is now off the table.
- Supply chain issues have helped push prices higher, as more scarce goods command a higher price by those who need to access them. Retailers have less stock and less of a need to discount prices at a time when it’s hard to find enough product.
- Rising construction costs signal renewed capacity pressure in the residential construction sector as building levels remain elevated and some building materials become harder to source due to supply issues.
- Tourism-related price rises are an enigma – prices have risen strongly, particularly for hotels and private accommodation providers, even as hotel revenues remain low and overall accommodation spending is down by at least one third. One theory is that lower-quality hotel and booking operators have closed due to the tourism hit, pushing up the average cost of hotels as more expensive operators are those who remain in the market.
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