Inflation

\New Zealand inflation is up by 5% for the year ending September 30th. This is the highest increase for 18 years, but Australia is reporting the same increase. The Governor of the New Zealand Reserve Bank has to keep inflation between 1% and 3% so this increase could be a worry. However, many economists are expecting that the Reserve Bank Governor will drop interest rates to banks tomorrow by 1% from 7.5% to 6.5% and this could bring lower mortgage prices for home owners.

Inflation is measured by Statistics New Zealand which takes a basket of goods and services that private New Zealand households buy and checks the cost of these same goods and services quarterly, that is four times a year. This is called the CPI or Consumers Price Index. In the last quarter, these things went up in price: food, petrol, air travel, building costs for new homes, electricity, rates that we pay to our local councils, rents, and alcohol. A few things like clothing have gone down.

Higher prices make it difficult for families where wages have not increased. Some government benefits will increase by 5% but not until 1st April next year. Shop owners are worried that people will spend less this Christmas. Charities which operate food banks say that more people are coming to them to ask for food parcels because they cannot feed their families.

However, better times might be just around the corner. Petrol is starting to come down, house prices are down and Fonterra announced that dairy prices will come down as world prices for milk powder have dropped. If mortgage rates also come down, rents might also fall and families who own houses will have to pay less each week.

On the other hand, the global financial crisis could affect us badly too. Overseas, businesses in the US, UK, Europe and Asia have closed making thousands of people unemployed. The same may happen here. Tourism is important to our economy but numbers of tourists are likely to drop next year. Some economists say that it takes six months before we really feel the effects of a financial crisis.






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