Chart of the Month: The rising cost of essentials
The cost of living is rising at an accelerating rate, leaving household budgets squeezed as wages rise at a slower pace. But just what do the increase in prices mean at a dollar level for Kiwi households? Our February 2022 Chart of the Month seeks to examine the additional cost each week that Kiwis are paying for some of the essentials.
Inflation at the end of 2021 rose to 5.9%pa according to the consumers price index – the fastest increase in 30 years (since June 1990). Over the same time, mortgage rates rose by around one percentage point, and wages rose 3.8%pa. Although important for economic analysis, percentage changes don’t mean a thing for households. So instead, Infometrics has analysed the likely increase in prices for a number of core household essential costs: food, fuel, electricity, rates, and shelter (either rents or mortgage payments).
An extra $70-$100 per week for essentials
Our estimates show that, on average across New Zealand, the cost of essentials rose by around $70-$100 per week between December 2020 and December 2021. Housing costs are the driving force behind rising costs for households, taking up almost the entire increase in pay.
Recent buyers, with larger loans, are paying around $76pw more as interest rates rise – equivalent to nearly $4,000 a year. Buyers five years ago are facing a lower, but still considerable, increase. Renters have seen rents broadly rise in line with wages, which still leaves no additional money for the rising cost of others goods.
Fuel and food prices are the next largest increase. Fuel prices have risen considerably over the last year, and with massive geopolitical tensions due to the Russian invasion of Ukraine, prices don’t look set to moderate any time soon. Supply issues, transport costs, and labour shortages have all helped push food price growth to a decade high, adding further strain to Kiwi’s budgets.
Notably, although the cost of essentials has risen by around $70-$100pw between December 2020 and December 2021, wages increased at a slower pace. For a worker earning the average hourly wage, and working 40 hours a week, weekly pay would only have increased by $50pw (before tax) in December 2021 compared to a year earlier.
Methodology
Note that in our total calculation of $70-$100pw, only one housing cost is included (hence the range), with the three housing scenarios all shown to demonstrate the variety of costs.
Our approach to determining cost rises drew on a number of datasets and approaches. For housing, actual payments were calculated either from median rent per week figures from MBIE, or by examining median sales prices from REINZ and 1-year fixed mortgage rates from RBNZ. Both rental and home buying figures are for the December month.
For food, rates, fuel, and electricity costs, the average per weekly spending from the 2019 Household Economic Survey was used as the basis, with figures for December 2020 and December 2021 calculated based on the change in the CPI for those components over the relevant time period. All figures are averages for the December quarter.
This analysis contributed to a Newshub Because It Matters report by Simon Shepherd in February 2022.
