ANALYSIS:
Inflation is the economic story of the moment.
Currently, annual consumers price index (CPI) inflation is 5.9 per cent, well above the 1-3 per cent band the Government sets for the Reserve Bank.
In Parliament, the Opposition is lashing the Government, arguing inflation is making Kiwis poorer, as incomes fail to keep up with the skyrocketing cost of living in areas like food and petrol.
The Government points out that it has increased wages faster than costs, and that the most recent forecasts from Treasury reckon inflation will slow over the next few years and wages will once again rise faster than costs.
There's truth to what both the Opposition and the Government have been saying.
As the Opposition has argued, you probably feel poorer than last year, because the growth in people's wages lagged the growth of costs, particularly in areas like food and transport.
But there's truth to the Government's counterargument that most people are better off now than they were when it took office (if you own a house that is).
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Advertise with NZME.Data collected by Stats NZ and used by the Reserve Bank when it watches over the inflation and employment picture shows how much money you would need in December 2021 to buy $1 worth of goods in the third quarter of 2017, the last period of government by National, and just before Labour took office.
Overall, you'd need $1.12 in December 2021 money to buy what $1 would get you in 2017 in general goods and services captured by Stats NZ's consumers price index (CPI).
This shows the effect of inflation. Over time, the value of money decreases, so you need more money to buy the same amount of goods and services.
What is staggering is that most of that change in value - most of the inflation - happened in the last 12 months. In December 2020, you'd only need $1.05 to buy what $1 got you back in 2017.
It's possible to break this down further. The real squeeze on costs has come from transport, where you would need $1.18 at the end of last year to buy what $1 would get you when the Government took office.
Transport costs have been hugely volatile over the course of Labour's Government. For periods in 2018 and 2019, there was actually deflation, where it actually cost less to travel than it had done before.
The current spike in transport costs has been dramatic. At the end of 2020, it cost just $1.02 to buy what $1 bought in 2017. The same amount of transport would cost you $1.18 at the end of last year.
The cost of food has increased, but not by as much as transport or inflation overall. You'd need $1.08 in December 2021 money to buy what $1 would get you when the Government took office.
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Advertise with NZME.But what about how much you earn - this is crucial because it determines how much money people have to keep up with those increased costs. Stats NZ measures this too.
The metric that the Reserve Bank watches for its employment and inflation watching is the change in hourly private sector wages, taken from the Quarterly Employment Survey.
This has risen steadily over the course of the Government. To buy $1 of wages when the Government took over, you'd need about $1.17 today. That means wages have increased faster than costs overall over the course of the Government, despite the current costs spike.
This means if you're an ordinary income earner, you've probably got more income to buy food, transport and goods and services in general than you did in 2017 - but you're probably feeling the pinch a bit because costs have risen much faster than your income in the last year.
The Opposition's strongest point relates to just how quickly inflation has spiked in the last 12 months, defying predictions of a short but painful flare-up. If price increases continue to outpace wage growth, people will find themselves far worse off than they did before, which will likely be a huge problem for the Government.
Treasury's most recent forecasts, published in its December HYEFU, reckon wages will grow by 4.5 per cent next year and 4.6 per cent the year after that, while prices will grow by 3.1 per cent and 2.7 per cent in those years. This means wages will again grow faster than costs. However these forecasts are now out of date, predating the war in Ukraine. The next set of forecasts, published next month, will likely show inflation persisting for longer.
There's a catch to all this, of course, and that's housing, which has shot up in value. To buy what $1 got you in housing in 2017 you would need $1.51 in the September quarter 2021 (prices have since eased).
