Inflation shocker: Government's supply of culprits running out, opposition says

Inflation has barely cooled off, despite Government interventions and expectations of a slowdown in surging prices for consumer goods. Photo / Jason Oxenham

The Government has blamed today's eye-popping inflation data on overseas issues and freak weather.

The overall Consumers Price Index was down only by a smidgen in the September quarter, but still higher than many analysts expected.

After months of punishing price increases earlier this year, Stats NZ today said annual inflation was at 7.2 per cent in the three months ending September 30.

That was only slightly down from 7.3 per cent in the previous quarter. And the reaction was swift and unrestrained.

Kiwibank economists called the CPI data a "shocker" and opposition parties seemed to agree.

Act's David Seymour says the Government and its policies are totally influential in many of the components driving inflation. Photo / Mark Mitchell

"For a long time, Labour has said inflation isn't its fault, blaming overseas factors," Act Party leader David Seymour said.

"Now that inflation of tradeables, things that can be bought and sold overseas, is easing, the attention turns to non-tradeable inflation, which is going up.

"In today's figures, inflation is down because tradeable inflation is down. Largely because the price of oil is down," he added.

"If Grant Robertson wants to take the credit, he needs to explain how the New Zealand Government lowered the price of a barrel of Brent crude."

But Seymour said the Government was totally responsible for non-tradeable inflation.

"Things that are not bought and sold overseas, such as medical costs, housing, and hospitality are affected by domestic conditions, such as Government spending and monetary policy."

National's Nicola Willis says fresh inflation data shows the Reserve Bank is out of touch with reality. Photo / Mark Mitchell

The National Party said Labour and an "out of touch" Reserve Bank must take responsibility for the rampant inflation.

"Inflation has become embedded into the economy on Labour's watch, with prices rising faster than anyone expected," National's deputy leader Nicola Willis said.

"Runaway prices are making a mockery of Labour's claims of a strong economy," said Willis, who is also the party's finance spokeswoman.

"These inflation figures are much worse than even the most pessimistic predictions, and make the Reserve Bank's hopes of a slowdown look wildly out of touch," she added.

"Perhaps most worryingly, domestic inflation rose to 6.6 per cent, the largest rise since Stats NZ began the measurement."

Among components driving inflation, vegetable prices rose at the fastest rate this century.

But major propellants for the 7.2 per cent annual inflation were housing and household utilities.

Rising prices for construction, rentals for housing, and council rates were all pushing up prices.

For the quarter, overall CPI rose 2.2 per cent and vegetable prices rose by 24 per cent.

Last month, data showed annual food prices had shot up faster than at any time in 13 years.

Then, supply chain issues, Russia's invasion of Ukraine, destructive weather events, and rising labour costs were all cited for surging fresh produce prices.

Deputy PM and Finance Minister Grant Robertson says supply chain blockages, turmoil abroad, and freak weather incidents all played parts in the latest inflation data. Photo / Mark Mitchell

The Government today cited external factors for rising prices in the broader CPI basket.

"Food price rises of 8 per cent for the year were not only influenced by global prices but also by severe weather events that affected growing conditions," Finance Minister Grant Robertson said.

"Inflation is continuing to be heavily influenced by global factors, with the Ukraine war and pandemic-related supply constraints affecting fuel and imported food and building material prices," he added.

"We have taken action to take the sharp edges off cost of living pressures on Kiwis, particularly those on lower incomes," said Robertson.

"Our temporary and targeted cost of living payment, fuel tax cuts and halved-priced public transport fares have helped ease the inflationary effects of the Ukraine war and supply chain disruptions," he added.

The cost of living payment totalled $350, split into three monthly payments, which started on August 1.

An estimated 2.1 million adult New Zealand tax residents earning less than $70,000 in the year to April were eligible for the payments.

The public transport subsidies and 25 cents a litre fuel excise cut were announced in March.

Initially intended to last three months, both initiatives have been extended into 2023.

The Green Party's Julie Anne Genter says inflation is corroding inequality and shows tax regime reform is essential. Photo / NZME

The Green Party today said high inflation was reinforcing inequality, and showed the need for a reformed tax regime.

"Inflation impacts everyone – but not equally. We urgently need to redesign the tax system to provide strong public services and income support so everyone has enough to live on," finance spokeswoman Julie Anne Genter said.

"Up and down the country it is getting harder and harder for families to put food on the table and pay the bills," she added.

"At the same time, large corporations are boosting their profits and the wealthiest few continue to benefit from untaxed capital gains."

The Council of Trade Unions said the annual inflation rate of 7.2 per cent defied market predictions declining global oil prices would fuel a bigger inflation slowdown.

Middle-income families and those on lower incomes were now facing tough choices, CTU economist Craig Renney said.

"The Government should be focusing on helping to protect these families during these challenging times."

Renney said core inflation, which most consumers could not avoid, continued to rise.

"Groceries rose 8 per cent. Petrol prices rose 19 per cent ... it appears as if internationally-based inflation is bleeding into domestic inflation more," he added.

"Two-thirds of all items saw prices rise, which suggests that inflation is now more broadly based than has been the case in the past."

He said the September quarter CPI data made it more likely the Reserve Bank would hike interest rates above current forecasts.

"This increases the likelihood of future job losses, and means households will be paying more in their mortgages," Renney said.

"Together with a darkening position on the global economy, it indicates more economic turbulence for the New Zealand economy ahead."

Kiwibank Economics said the higher-than-expected CPI data was "a shocker" but at least there was some scope for optimism.

"Several indicators suggest that the pressure on global supply chains has eased materially in recent months," Kiwibank Economics said shortly after the CPI announcement.

"Global shipping costs have firmly turned south, and capacity is expanding with more ships being built," the Kiwibank analysts added.

"However, it's a long way back to 2 per cent with the Kiwi currency slowing the return."