Cost pressures are building across the economy, as strong demand encounters severely stretched supply chains. Businesses are being forced to raise prices to consumers as their own suppliers hike input costs. Inflation in September 2021 was 4.9% in New Zealand – the fastest in decades if you ignore the GST rise in 2011. Provincial areas of the North Island are seeing the highest price rises, as strong economic intentions hit capacity constraints.
It’s increasingly difficult to source some goods, which is piling on cost pressures time and time again for distributors. It now costs more than 10x more to send a container on a ship than what it did pre-pandemic, and frequent compounding price rises are common topics of conversations for our economists.
Digging below the headline inflation figure, regional inflation shows uneven levels of pricing pressures across New Zealand. With high and rapidly rising levels of construction, the cost of building across the “Rest of the North Island” (The North Island excluding Auckland and Wellington) is running at over 15%pa. This price increase is far higher than the sub-12% increases across all other parts of the country, including all three major urban regions (see Chart 1).
As our October 2021 Chart of the Month shows, general pricing pressures are currently stronger across provincial centers, with headline regional inflation higher in provincial areas, rather than in the major metro areas.
These pricing differences make sense – our regional economic analysis have shown provincial parts of the country seeing stronger spending bounces and economic activity in general. These better economic results mean that these economies are hitting capacity constraints harder, with the result being stronger inflationary pressures. Better economic results are significant but will be cold comfort for businesses and households struggling to pay higher costs. Keeping on top of the budget has never been more important.
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