If you weren’t already weary of living through historic events in recent years, here’s another driver for rapid change: inflation is on the rise, and quickly.
Simply defined, inflation is the rate of prices increasing in an economy over time. Another way to think of this is how much your money today will buy in the future (or, as the case usually is, how much it will not). New Zealand alone has seen swift changes in the inflation rate over the decades.
What’s driving car prices?
Going through some newspaper ads recently, I came across an ad from 1971 for a brand-new Holden Kingswood priced at $2,971. Rather mind-blowing? These days you wouldn’t even be able to buy a second-hand family car for anywhere near that.
The average price of buying a second-hand car has soared nearly 14% over the past year. As one of the ever-evolving consequences of the pandemic, there’s a shortage of vehicles in general being brought into the country. The time-honoured practice of picking up a cheap second-hand import has stalled for now, with demand once again outweighing supply.
Anyone will tell you that you start losing money from the day you drive it out of the dealership. Cars are well-known for depreciating over time. However, due to the aforementioned supply issue, this may not be the case looking forward. TradeMe Motors sales director Jayme Fuller has dictated that latest data shows that Kiwis are “actually making money on used cars” - something that was relatively unheard of until now.
Then once you have the car, you have to keep it fuelled. The national average of 91 octane is now $2.39 per litre, with Auckland hitting a particularly painful $2.60+ per litre in some places and no slump in sight. This is 151% up on last year, and again, largely pushed along by demand outweighing supply post-COVID.
In vino veritas
Something I’m sure we’re all concerned with, given Hawke's Bay is wine country - a typical wine buyer is now paying more for the same drop they would have purchased at a lower price 10 years back. That’s the power of inflation.
New Zealand’s largest auction house Mossgreen-Webb’s has seen a climb in price across a number of New Zealand wines, none more so than the Te Mata Estate Coleraine. In Feb 2021, Webb’s sold a bottle of 1982 Coleraine, Te Mata Estate’s flagship label, for $355. Just one month later, in March, $888 was realised for the same vintage. Most recently, in Webb’s September auction, $948 was paid for one bottle. The 1982 has been touted as possibly New Zealand’s most famous wine, which no doubt increases the appeal among oenophiles even with the heftier price tag.
On a less grandiose scale, we can see from a recent spate of supermarket-centric stories that the price of food and drink in general is at an all-time high as well. Fruit, vegetables, red meat, dairy... nothing seems safe at the moment. Chillies in particular hit over $120kg recently, so to chefs looking to add a kick to their meals – you can probably just read the price label and your eyes will start to water.
Where we stand currently
In New Zealand the annual inflation has jumped to 4.9% in the September quarter compared to the June 2021 quarter which was reported to be 3.3%. The rise in inflation was higher than analysts were anticipating and puts the rate almost 2% above the top of the Reserve Bank’s target band.
ANZ economist Finn Robinson said stronger fuel, freight, housing and food costs are expected to be the main drivers for the current surge.
Incomes are growing slower, with the latest available data putting average wage inflation at 2.1%. In plain speak – living costs ($22.75) are still rising faster than wages ($20.00).
CTU analysis of the data showed inflation was concentrated in those areas which were most difficult to escape for households. Housing and household utilities contributed the most to overall annual inflation figures, rising by 6%. Followed by transportation prices rising by 13% with petrol being the main driver. The third fastest rising group being food, rising at 3.1%.
These figures clearly depict the need for continued increases to minimum wage that genuinely reflected the cost of living for low-income New Zealanders.
Many New Zealanders are facing a higher living cost regardless of their choices. Following the increase in inflation the next big questions for New Zealanders will be: “What will next quarter inflation reading be? Is the rise in inflation temporary or long-lived? Or how will it compare to market expectation? How will it affect my portfolio?”
If these kind of questions are keeping you up at night, it’s a good time to think about seeking out trusted professionals to help. A financial adviser can help you make sense of your situation for peace of mind – no matter what the price of produce.
•Nick Stewart 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 article, 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
