20 Jan 2016

Has NZ's inflation hit rock bottom?

7:34 am on 20 January 2016

Inflation figures are due out this morning - and are expected to be very low.

NZ twenty and five dollar notes.

Photo: RNZ / Diego Opatowski

The Consumers Price Index (CPI) is expected to show prices rose just 0.3 percent in 2015, and actually fell by 0.3 percent in the last three months of the year.

An annual inflation rate of 0.3 percent would be far below the average of 2.7 percent since 2000, and a drop in the bucket compared with the average of 11 percent in the 1970s and 1980s.

The low figures might not last, however, with the rock bottom rate due to be announced today driven largely by one-offs such as falling oil prices.

Economists have said stripping those out would leave underlying inflation significantly higher, at more like 1 to 1.5 percent per year.

Housing costs causing concern

Recent figures have shown Auckland property inflation was about 14 percent last year, well ahead of the CPI's expected 0.3 percent.

Keeping house prices out of the CPI is usually justified by saying houses are a capital asset, not a consumed item that is rapidly replaced, and therefore not suitable for the index.

Most house sales are also second-hand, with a buyer and a seller that cancel each other out.

But that was little comfort to many in Auckland concerned at high house prices. One woman told RNZ she spent half her family income on her mortgage, and another said she spent more than two thirds of her wage on rent.

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