Necessities and the government push up cost of living

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CTU media release
18 April 2011

Necessities and the government push up cost of living

“High rises in the costs of important necessities pushed up the CPI in the three months to March,” says Bill Rosenberg, CTU Economist. “High rises in both necessities and government charges pushed it up for the year. These will cause increasing hardship for many workers, beneficiaries and their families.”

“However we should not take from this that there is inflation at a rate which would justify a rise in official Reserve Bank interest rates earlier than it has signalled. The result is only slightly higher than the 4.4 percent that the Reserve Bank expected. Many parts of the economy are still showing reluctance to raise prices as a result of the continuing stagnation in the economy with continuing high unemployment, and the proceeds of high export prices being used to lower debt rather than spend locally.” says Rosenberg.

Without the big price rises in household necessities, prices in the first quarter would have risen by only 0.1 percent. Food rose by 1.2 percent, petrol by 9.7 percent, and other vehicle fuels (such as diesel) and lubricants by 13.7 percent.

The CPI went up by 4.5 percent in the year to March. Statistics New Zealand estimate it would have risen only 2.6 percent without the rise in GST. In addition, tobacco products and education costs rose as a result of government actions. For example, early childhood education costs rose 11.7 percent in the year, fuelled by cuts in government funding rates, the largest rise ever recorded (the series began in December 1988). Tertiary education costs rose by 6.4 percent.

Other large increases for the year included vegetables which rose by 12.1 percent, milk, cheese and eggs by 8.8 percent, petrol by 17.1 percent, and electricity by 6.0 percent.

“There is a lot in this result to justify continued government support for the economy. But it does not justify any change the Reserve Bank’s stance.” Rosenberg concludes.

ENDS

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