What feels
like a cost-of-living crisis may just be a symptom of the nation getting poorer in relative terms.
I appreciate that there was a huge inflationary spike in the past few years that left consumers feeling ripped off – and acutely sensitive to further price rises (I’m looking at you, butter!).
But inflation spiked in almost every nation in the world post-Covid.
If it was worse in New Zealand than anywhere else, then that was because of too much economic stimulus – our money supply was expanded too fast and too far.
That’s a different story from the one that everyone’s so upset about this week.
New Zealanders seem obsessed with finding someone to blame for the high cost of living.
Farmers, supermarkets, the Government ...
In fact, the Government has leaned into the cost-of-living hysteria, using it as an opportunity to target supermarkets.
It makes great headlines. A cynic might call it a clever piece of misdirection to distract from the seriously grim state of the economic recovery.
For starters, are we actually being ripped off?
When it comes to supermarket pricing, it’s not that hard to make direct comparisons internationally these days.
You just go to the websites of the various international supermarkets.
I’ve been looking at the price of butter across the world. At Target in the United States it is $9.40 a pound (which is just 453g, compared with 500g blocks here).
At Tesco in Britain, 500g costs $9.10 for the house brand, $14.90 if you want Anchor.
Despite what an endless stream of angry talkback callers keep telling us, New Zealand butter isn’t cheaper over there.
Woolworths New Zealand currently has 500g of Anchor for $11. It has its house brand for $8.49.
In Australia, you can buy 500g of house brand for $7.77, which is pretty good, but a Westgold or Mainland will cost you about $10 for 500g.
Minced beef is selling for between $17 per kilogram and $41 per kg at Tesco in Britain, depending on the fat content and quality.
At Woolworths NZ, it currently ranges between $21 and $33 per kg.
In the US at Target, mince prices range from about $25 to $37 per kg (or a bit more, actually, as these are the prices for two pounds’ worth).
In Australia, a kilo sells for between $13.30 and $34.
Obviously, there are lots of variations, but the prices seem to be entirely in the same ballpark as ours.
The only really compelling evidence I’ve seen to back up the notion that we’re being ripped off for groceries is in the annual grocery report by the Commerce Commission.
Although it released a new report last month, it’s titled the 2024 report, and the latest price comparison data is for 2023.
It finds that New Zealand grocery prices were 3% higher than the OECD average.
But then it notes that “to some extent this may be attributable to differences in the taxation rate applied to food in different countries. Goods and services tax (GST) of 15% is applied uniformly in New Zealand, while basic food items in Australia, the UK and Ireland are mostly exempt from taxation, reducing retail prices paid by consumers”.
So yeah, we could be better, but does that really justify the media focus and political energy currently being turned on the issue?
It sounds like we could resolve the issue if we took GST off basic food staples.
But we won’t do that because the Government can’t afford the loss of tax revenue.
What it doesn’t suggest is that a few extra Costcos are going to solve the problem.
I understand that ordinary New Zealanders are really struggling to keep up with the cost of living.
I know what the Facebook comments under this article will say.
I don’t think I’m out of touch, and I’m certainly not living in an elite bubble.
Every week I do a large grocery shop at Mt Albert Pak’nSave for a family which includes two hungry teenage boys.
I’ve been doing that shop at the same place for almost 20 years.
No, I’m not struggling financially, but I see prices change, and I’ve adjusted my buying habits to cope with beef and dairy rises.
I always shop seasonally for fresh produce. You won’t catch me paying $4 for a red capsicum.
Some habits around money are hardwired. Even if I won Lotto, I can’t imagine feeling comfortable doing my full weekly shop at a New World.
My point is that our obsession with nominal pricing is an easy populist diversion that is distracting from New Zealand’s real economic problem.
I’m all for lowering the regulatory burden on business and increasing competition.
The reason I’m for that stuff is that it will make New Zealand businesses more efficient and boost productivity.
That’s right, I said it – productivity. All that grocery price stuff was a cunning ruse to sneak the real topic into this column.
I had to do it that way because it’s a topic that no one wants to talk about.
If I’d put the word in the headline, almost nobody would have read this far.
The big fundamental issue with our economy is that many (and an increasing number) of New Zealanders no longer earn enough to live comfortably in their own country.
That’s because our productivity has fallen.
You can’t legislate wealth creation. We know that pumping the economy just pushes it past its capacity to cope and creates more inflation.
What we need to do is create real wealth.
That means doing things more efficiently, saving more and investing more cleverly, building more modern infrastructure and spending more on research and development.
The Government, to its credit, is chipping away at many of these issues.
I hear Prime Minister Christopher Luxon talk about this stuff, and I know he’s keen to keep it all at the front of the public debate.
It’s hard. These are complex issues without easy fixes. They don’t grab the public attention the same way supermarket bashing does.
But that is the challenge of leadership.
The economic cycle will turn soon. Things will get better for a while. Commodity prices will fall, and consumers won’t have butter and beef to complain about.
But unless we stay focused on boosting productivity, we will not boost real wages.
We will remain stuck in an ever-decreasing spiral of lower wages, which we’ll keep describing as a cost-of-living crisis.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
Sign up to Herald Premium Editor’s Picks, delivered straight to your inbox every Friday. Editor-in-chief Murray Kirkness picks the week’s best features, interviews and investigations. Sign up for Herald Premium here.
