Prime Minister Chris Hipkins claimed the slashed policies would cumulatively save over a billion dollars to be put toward assisting New Zealanders with the rising cost of living.
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Confused by the ever-changing facts and figures in the cost of living crisis? Data journalist Julia Gabel breaks down the jargon.
New Zealanders are almost $5000 worse off now, on average, than they were at the beginning of 2021 when the cost of living crisis began to bite.
The figure is based on the difference between average gross wages and prices for people who have stayed in the same job.
Senior Kiwibank economist Mary Jo Vergara explains a cost of living crisis is when the prices of the things we want and need to buy rise faster than our wages and salaries.
Today, inflation is 7.2 per cent, but a new figure showing whether the crisis is potentially easing or worsening is due tomorrow. Vergara said wage growth usually tends to match inflation, but currently sits at 4.3 per cent for the private sector.
“Wages in New Zealand are growing at a slower pace than the rise in consumer prices, so you are seeing household’s real incomes actually being eroded, so their purchasing power is a bit weaker than it was before.”
Inflation of 7.2 per cent implies that on average, something that cost $100 in the last quarter of 2021 would cost $107 in the last quarter of 2022.
At the start of 2021, the average New Zealand income was $71,000. Since then, incomes for people who haven’t been promoted or changed jobs have increased by 6.8 per cent on average. During the same time, the average cost of goods and services has increased by 13.6 per cent.
This means someone who earned $71,000 at the start of 2021 and has received the average pay increase has experienced an effective decrease in spending power of $4828.
Over the same time, “hourly earnings statistics” – a measure of wages that includes the effect of promotions and changing jobs – has increased 11.3 per cent. Normally, the two earnings measures are much closer together, suggesting a significant number of people have changed jobs or gained promotions - possibly in response to increased costs.
The Reserve Bank tries to control inflation by increasing the Official Cash Rate (OCR), the wholesale rate at which banks can borrow money, which affects all borrowing and ultimately increases the cost of household mortgages.
When the Reserve Bank began using the OCR in 1999, price increases due to increased mortgage costs were removed from our official inflation measure.
This means as mortgage costs increase, many households face an even larger increase in costs than what is reflected in the official inflation figures. Stats NZ estimates this as 8.2 per cent for all households.
Kiwibank economist Mary Jo Vergara.
Vergara said in the period after the Global Financial Crisis and before Covid, both inflation and wages were tracking around 1.5 per cent. Since then, inflation and wages have both increased, but not to the same extent.
“That’s how you would describe today’s environment - as being a cost of living crisis. It’s not just a sensationalist thing.”
Inflation is officially measured by Stats NZ using the Consumers Price Index (CPI). Statisticians use a sample of goods and services called “the basket” to track their price changes.
Many things influence the prices we pay for our goods and services, such as changes in the cost of labour domestically, oil prices and supply chain disruptions.
Vergara said there was evidence, such as oil prices coming down and shipping costs coming off their highs, to suggest inflation might have come down, but it was “hard to say” what impact Cyclone Gabrielle would have.
“It does frustrate the outlook for food prices and construction costs. Heaping pressure on these capacity-constrained sectors just adds to the inflationary picture.”
Several people the Herald spoke to for its ongoing cost of living project said food prices were the biggest financial pressure they felt. Wellington student Aidan Donoghue said he had hardly bought any fruit or vegetables in the past year because they were too expensive, and he was taking vitamins and supplements instead.
Another woman, who spoke to the Herald on the condition of anonymity, said her kitchen cupboards were almost bare. Tauranga mother Chanchal Saraswat said her family’s food budget has doubled in three years.
