New Zealanders spent nearly every dollar they earned as inflationary pressures mounted during the first three months of this year, Stats NZ reports.
Stats NZ said:
Household disposable income rose 1.8% in the March quarter to $53.8 billion, Stats NZ reported, but net savings were only $19 million or less than 0.04% of that total.
“During the pandemic, household savings were relatively high. Limited access to shops and services reduced household spending. At the same time, government subsidies supported family income,” said senior manager Paul Pascoe.
“Savings fell in the March quarter as household spending rose.”
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Household wealth also fell $42 billion, or 1.7%, during the quarter, due to declines in home prices and financial assets such as stock prices, Stats NZ also reported.
People’s savings could come under pressure as interest rates rise and economists predict another inflation shock.
ANZ has forecast that Stats NZ will report that annual inflation has risen in the three months to the end of June to a 32-year high of 7.1%, up from the 6.9% year-over-year it reported for the quarter of March.
The forecast came after the US Department of Labor overnight reported that annual inflation in the US had reached a worse than expected peak in 40 years from 9.1%.
ANZ predicted that “imported” or so-called tradable inflation, caused by price increases for imported goods and services, including gasoline and diesel, would increase inflation, and blamed global commodity price developments in the wake of Russia’s invasion of Ukraine.
It predicts that annual non-tradable inflation in goods and services, which are produced locally, remained stable in the last quarter, but at what it described as a “worryingly high” level of 6%.
“The challenge with the domestic inflation pulse is not so much the peak, but how long it can last,” it said in a research note.
“With inflation expectations still strong and an increasingly tight labor market, the answer is likely to be too long.”
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Data from Stats NZ shows that families spend almost every dollar they earn.
The Reserve Bank forecast in May that annual inflation would be slightly higher in the June quarter at 7%, before falling to 6.2% in the September quarter.
But it warned when it published its monetary policy review on Wednesday that there was “a near-term upside risk to consumer price inflation”, implying that it was concerned that inflation could rise higher than forecasts.
Westpac and BNZ also forecast the June quarter figure to hit 7%.
“Price pressures are bubbling up in every corner of the economy,” said Westpac senior economist Satish Ranchhod.
But he predicted particularly large increases in the prices of food, fuel and housing-related costs.
Stats NZ reported on Wednesday that food prices were 7.6% higher last month than in June last year.
ASB said the US inflation data was “a pretty huge upside surprise on already high market expectations, showing that inflationary pressures in the US are still very strong”.
Inflation of 9.1% fueled speculation that the US Federal Reserve would choose to raise the equivalent of the official cash interest rate (OCR) by a full percentage point at its next meeting on July 26-27, the bank said.