All eyes are on interest rates this week, with inflation hitting a 30 year high of 6.9% according to the Customer Price Index (CPI) data.[i] While it’s not quite the crazy rates of the ‘80s, it’s bringing back not-so-fond memories for those who may have been borrowers during that time.

There’s been a bit of a blame game happening as Government, the opposition and other players on the board scramble to find a scapegoat for high inflation.

In terms of global factors, we can see inflation drivers are the same around the world. Energy is costing more because of the conflict in Ukraine, as is wheat and sunflower oil.  Certain goods have had their supply chains disrupted by the COVID shutdowns in China. These same shutdowns may have more impact in future as they prevent the planting of rice and corn from happening as they usually would.[ii]  It should be noted that despite our own Government and others globally using Putin as the fall guy for their inflationary woes, in reality inflation reared it head in mid 2021.[iii]  

So combining disrupted supply chains and expensive gas, it’s possibly not so difficult to imagine why little old NZ down the bottom of the map is getting costly – and fast.

As for the recent flurry over the grocery sector - there’s been a 4.5% increase in annual food prices from December 2020-21, spelling the biggest increase since 2011. Yes, some of this will have come from the aforementioned supply issues… and some of it comes from the fact we have a duopoly between Foodstuffs and Woolworths, which means very little motivation to provide lower prices. This has led to approximately $430M in excess profits annually, as the Commerce Commission report found.[iv]

Then, of course, there’s housing. We’ve seen both rent and house prices skyrocket the past few years.

In the meantime, inflation remains the increasingly brazen thief in the night come to steal your money’s spending power. A dollar today is not as powerful as a dollar a year ago at the pump, or the supermarket – and we don’t currently have a way out of it beyond waiting for the world to come rightside up again.

Perhaps more concerning to some is the threat of inflation driving up interest rates on their mortgage, as the Reserve Bank has announced it would be raising the Official Cash Rate (OCR) again.

Our fear of FOMO and love of home ownership have led to an ever growing portion of New Zealanders with 7-figure mortgages. The previously low rates on mortgages have made a lot of people comfortable with this leap into the property market. While we’re still a long way from the shudder-worthy interest rates of the ‘80s, any rise in interest on a loan already so large is going to have a significant impact.

Banks have already begun lifting their interest rates ahead of this – BNZ, for example, has lifted its one-year fixed home loan rate to 4.55% from 3.99% and the two-year fixed rate to 5.25% from 4.69%.[v]

Ouch. That’s gonna hurt.  Those on fixed remuneration or limited means of expanding their household income have few options but to reduce their discretionary spending or bite the bullet right in their balance sheet.

BNZ is not alone, with ASB, Kiwibank and Westpac also raising their home loan rates.[vi] Homeowners owing money on their houses will likely already be braced for impact – and will need to keep in mind that this upset may not be the big one, and we may feel the rumbling rollout of higher rates for a while.

While it may seem trifling in the face of everything happening, now is the time to stay focused on any good spending habits you’ve built prior to the rise in costs. If you don’t have much in the margins, every dollar counts (and should be accounted for).

Some tips:

• Setting up separate bank accounts for essential spending, non-essential spending and saving. Some people find separate accounts can be a useful way to help them live within their means and develop a savings habit.

• Making a regular date with your partner to set money goals and agree how to achieve them. As well as preventing money-related arguments, joining forces can help you to achieve your goals more quickly.

• Taking some time to review what you’re spending on takeaways, treats, power, mobile phone, internet, insurance and credit cards. Could you get a better deal?

• If you have a mortgage or other loan and you can see the wheels starting to come off, talk to your bank as soon as you can. They may be able to help before you default on a payment down the line.

• Defer capital expenditure that is not essential, and have a having a clear and agreed distinction between what is a want and what is a need.

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 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

[i] https://www.stats.govt.nz/news/annual-inflation-reaches-30-year-high-of-6-9-percent

[ii] https://www.interest.co.nz/public-policy/115436/ctu-economist-questions-how-government-spending-supposedly-lifting-prices-when

[iii] https://www.stats.govt.nz/topics/consumers-price-index

[iv] https://www.stewartgroup.co.nz/we-love-to-write/2022/3/14/all-that-and-a-bag-of-chips

[v] https://www.stuff.co.nz/business/money/128403895/bank-of-new-zealand-lifts-home-loan-rates

[vi] https://www.interest.co.nz/personal-finance/115361/bnz-joins-anz-pushing-fixed-home-loan-rates-higher-relentless-rise