Low inflation

April 20th, 2012 at 10:58 am by David Farrar

The latest figures show up for me how silly Labour’s election policies were. Do you remember how they campaigned on removing GST off fruit and vegetables, because people can’t afford them?

Well in the last year the average cost of fruit and vegetables has dropped 6.6%.

Overall have increased just 0.6% in the last year. That is good for especially low income families, as food makes up a larger proportion of their budget.

Clothing costs increased only 0.1% over 12 months also.

Also do you recall all the stories about massive increases in ? Well over 12 months the average cost is up 1.8% only.

Inflation overall for the year was 1.6%. Still a bit higher than I would like it. I believe 1% is the appropriate level to aim for (mid-point of 0% to 2% range) but the Reserve Bank will be happy with 1.6% and interest rates should remain low for a while yet.

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15 Responses to “Low inflation”

  1. Other_Andy (2,676 comments) says:

    “Also do you recall all the stories about massive increases in electricity prices? Well over 12 months the average cost is up 1.8% only.”

    And how much of that can be contributed to the ETS?
    It has been estimated that the ETS has cost the average family of four around $750 a year since it was introduced in 2010.
    The government is now planning to double that cost to around $1,500 a year over the next three years

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  2. Viking2 (11,471 comments) says:

    Disingenuous post.
    What causes prices to go down locally. Well lack of employment of course but less customers as well. How many plane loads have gone to Aussie this last year. Less customers with less money equals less spending. That’s what the money flows show.
    Less spending equals less demand and therefore more stock and clearances at lower prices.

    What are the externals. Well look at our dollar high. Great for importers as it lowers the cost of imports BUT wait up a moment. The cost of imports from China and therefore other countries are on the rise because the growing middle class in China don’t want to work for nothing anymore and the Chinese Govt. has to satisfy its people a well. That will have a ripple effect in the coming months. Already some of my suppliers are searching the world for better prices than the Chinese will now do.

    Clothing costs. Well thousands now buy online and don’t pay the GST. How clever is that for the Govt. finances.

    Bagging Labour for everything and National doing nothing doesn’t fix anything. Just National as normal.
    Tell us when National really do something good.
    Oh they have fixed ACC. yeah right.
    They have fixed welfare. Really
    They have cut spending and waste. Not yet apparent.

    Beehive Bullshit Castle continues as usual.

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  3. tvb (4,422 comments) says:

    Viking you would not be happy unless there is a thermo-nuclear war and then you will have something to moan about. These are good numbers and the government can take credit because Viking you and others will blame them if the figures were bad.

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  4. redeye (629 comments) says:

    If they can get on top of local government spending and council rates were capped at inflation those figures would drop even further.

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  5. hmmokrightitis (1,590 comments) says:

    redeye, what connection does the CPI have with council rates? Do tell. How many homes buy road metal, pipes, large water reticulation and waste treatement plants? What is the rate of inflation for these things, that the CPI doesnt cover?

    Any idea? Or just random conencting of dots to fit your argument? By all means, lets have the debate about what ‘public good’ actually is, but FFS, lets make it an informed debate, not based on spurious assumptions.

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  6. Alan Johnstone (1,087 comments) says:

    I personally would prefer much higher inflation, inflation transfers wealth from savers to debtors as it degrades the real value of debt. Inflation at around 6% – 7% would suit most people paying a mortgage nicely.

    It would also encourage people to invest in more productive assets rather than passive ones.

    I’d suggest we are much more at risk of deflation than inflation and that is a much worse thing.

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  7. Viking2 (11,471 comments) says:

    tvb (2,526) Says:
    April 20th, 2012 at 11:29 am

    Viking you would not be happy unless there is a thermo-nuclear war and then you will have something to moan about. These are good numbers and the government can take credit because Viking you and others will blame them if the figures were bad.

    My criticism is off the disingenuous post using Labour as the whipping boy 4 years on.
    As I summarized the important stuff is still waiting on Govt. who are busily busy bodying still instead of doing what they should.

    The problem with low inflation as points out is that currently we run a risk of deflation and that will impact hugely on Kiwi’s.

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  8. redeye (629 comments) says:

    Homo: A consumer price index (CPI) measures changes in the price level of consumer goods and services.

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  9. Rick Rowling (813 comments) says:

    My criticism is off the disingenuous post using Labour as the whipping boy 4 years on.

    Actually, he was pointing out the weakness in the Labour election campaign 5 months ago.

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  10. Rick Rowling (813 comments) says:

    There are a raft of Capital & Producer’s price indexes which would be much better to measure territorial authorities against.

    But getting political will to do so would require the statistically illiterate MSM to get past the only two statistical phrases that they know: “Consumer Price Index” and misusing “Margin of Error”.

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  11. hmmokrightitis (1,590 comments) says:

    redeye…

    You may have missed…

    A consumer price index (CPI) measures changes in the price level of ——>consumer<——- goods and services

    Do keep up, theres a good lad

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  12. V (720 comments) says:

    @Alan Johnstone

    Problem is inflation isn’t a linear lever you can ratchet up and down. Aim for 6-7% inflation you are likely to end up with 15%+.
    Also the 1970’s rang and would beg to differ on the benign effects of inflation.
    Do you really think with inflation at these levels people will invest in productive assets, of course not they will grab any speculative asset that isn’t being printed like confetti, creating huge economic distortions. So much for those on fixed incomes who willl be destroyed while those who can quickly switch asset classes will benefit.

    Are you really suggesting a halving of the purchasing power of money every 10 years is a good thing?

    Sadly it has been a clarion call throughout history, “just a little bit more inflation”, but every single time it has been tried the result is disaster. Yet the calls are still made.

    Please tell me you don’t work anywhere near the RBNZ?

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  13. freethinker (691 comments) says:

    I currently pay 18% more for electricity from Powershop than I did a year or so ago, Petrol has increased over 20%, rates are going up this year in Christchurch 7.5%, Car rego has increased in excess of headline inflation, insurance were available is increasing at an incredible rate so forgive me if I believe headline inflation figures any more than I do in father christmas!!

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  14. Joseph Carpenter (214 comments) says:

    Actually Hmmokrightitis the CPI DOES include an item for Local Authority rates, it’s part of the domestic accommodation section. And if you checked the breakdown for the accommodation section (which is weighted at only 28% of the total CPI – I believe it should be much higher nowadays, more like 50%) you would see that for every one of the last five years CPIs’ Rates and Local Authority fees on new construction are by far the biggest increases.

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  15. V (720 comments) says:

    Anyone who has actually participated in the survey to reweight the CPI basket will realise what a joke the concept of CPI aggregates are.

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