Canny View: Playing the long game is key to growing your wealth

Feeling in control of our finances is incredibly empowering, yet managing them can take time and skill, says Nick Stewart. Photo / Getty Images

As with the most recent OCR rate hike, the latest announcement on the NZ Consumer Price Index (CPI) comes with good news and bad news.

The good news; there has been a very slight decrease overall from the previous quarter's 7.3 per cent rise, with the September quarter lifting by 7.2 per cent.

I did say slight. For some, this might seem like the start of relief to the skyrocketing inflation we've been experiencing in New Zealand. However, most forecasts were predicting a number in the sixes rather than one starting with a seven – which begs the question, is the RBNZ's aggressive approach using the OCR working?

At the moment, the answer is no. The RBNZ's prediction for the CPI was 6.4 per cent - this following five consecutive 50bp hikes to the OCR, which was meant to deliver a short, sharp end to rampant inflation.

It's turning into more of a long, painful procedure … which is the bad news.

The cost of living in New Zealand is still increasing in key areas. Non-tradeable inflation (goods and services that don't have foreign competition) has hit a 6.6 per cent increase, which is the highest this area has seen since the series started in 2000. Fruit and vegetables have risen by 17 per cent, pushing the overall food cost up by 4.1 per cent.i

If you're a little lost in terms of what the CPI actually measures, it's the changing price of a fixed 'basket of goods' purchased by New Zealand households. It's adjusted over to account for size or quality, and the idea is that we as consumers end up with an overall indication of the expenditure patterns of New Zealand households on food, housing, transport, and other areas.ii

Nick Stewart

We can also use this to track inflation over time, which is why there has been a lot of focus on these numbers as the cost of living in New Zealand has risen to crisis levels over the past few years.

BNZ, ANZ, ASB and Westpac are all predicting a 75bp hike to the OCR in November following this latest release. In fact, they're calling for it as a harder approach to inflationary pressures, with some citing that the central bank is too far behind the inflation game.iii

In the meantime, it'll come as no surprise that interest rates have risen yet again, with fixed lending rates above 6 per cent. Families are moving backwards as costs rise, and stimulus efforts like the cost of living payments are making it worse in the long run. As economist Cameron Bagrie puts it – "alarm bells are ringing".iv

With all this going on, it's crucial to keep your eye on the prize when it comes to managing your finances. As grim as the above is … it won't be forever, and you need to keep your future financial wellbeing in mind.

Start with what's coming in, what's going out, and what you need to achieve – and remember to stay focused on what you can control, rather than external forces beyond your control (like the OCR and CPI).

Playing the long game is key to growing your wealth. This could look like saving what (and where) you can, paying down non-deductible debt as quickly as possible, and having a good handle on your emotions/behaviour when it comes to money so you can avoid knee-jerk reactions – all to set you up in a better position for the future.

Feeling in control of our finances is incredibly empowering, yet managing them can take time and skill, which in itself can be stressful. Remember there are all kinds of resources available to help you find your best options, be that paying down your debt or growing wealth.

If your plan is more around future-proofing and growing wealth than handling debt, there's options for that as well. The best place to start is by sitting down with the professionals.

· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.

· The information provided, or any opinions expressed in this show, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

i https://www.stats.govt.nz/information-releases/consumers-price-index-september-2022-quarter/ ii https://www.economy.com/new-zealand/consumer-price-index-cpi iii https://businessdesk.co.nz/article/economy/do-we-need-to-bludgeon-the-economy-into-submission iv https://businessdesk.co.nz/article/opinion/alarm-bells-are-ringing-but-is-anybody-listening