16 July 2013

Price rises hitting low income families harder

“It’s good to see low increases in prices, but many of the increases are in areas that hit low income families hardest”, says CTU Economist Bill Rosenberg.

“For the lowest income 30% of our households, I estimate they have faced inflation over the year 0.2 to 0.3 percentage points higher than the official CPI. The increase in housing prices, particularly rents, up 2.1 percent for the year, hit low income families harder than others because they are a larger part of their incomes.”

“Middle and high income families are also hit by these big increases, including building costs and insurance which rose 9.9 percent in just the three months to June, but are more likely to be benefiting from still falling interest rates which are not measured in the official CPI”.

“Electricity prices are still rising much faster than other prices, up 2.6 percent in the three months to June, and 3.4 percent for the year. Essentials like this hit all households, but for low income households, a much greater proportion of their spending goes on energy. This big rise also confirms the need for changes to New Zealand’s electricity system to curb such big increases.”

“The very low inflation environment is an indication that the economy is still not firing on all cyclinders,” Rosenberg says. “There is no pressure on the Reserve Bank to push up interest rates from general price increases – but it faces a real problem with the Auckland housing market. That calls for targeted measures from both the Bank and Government rather than knocking the rest of the economy by raising interest rates.”

“It is also a good time for decent wage increases, exceeding inflation, to catch up from several years of stagnant incomes,” concludes Rosenberg.

ENDS

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