Low inflation helping households get ahead

Low inflation is helping New Zealand households get ahead, with wages on average continuing to rise faster than the cost of living, Finance Minister Bill English says.

Inflation was only 0.8% for the 2014 calendar year, according to figures released by Statistics New Zealand today. In the three months to December, New Zealand experienced negative inflation, with the consumer price index falling by 0.2%.

Petrol prices fell 5.7% in the December quarter, and have continued to fall in the new year. But lower inflation is not just being driven by cheaper imports, with annual inflation for non-tradables – a key measure of domestically driven inflation – being the lowest since early-2013 at 2.4%.

“Over the last few years, the Government’s commitment to fiscal restraint and economic reform has also reduced inflation pressures. This is allowing interest rates to stay lower for longer, which is enabling more household savings, and creating better conditions for investment and exports,” Mr English says.

“Current economic conditions - stable growth, low inflation, more jobs and low interest rates - are helping New Zealanders to get ahead. Households with mortgages have the double benefit of low cost of living rises and lower mortgage servicing costs, which will be particularly welcome in regions with increasing house prices.”

Like many developed countries, New Zealand is adjusting to a low-inflation environment. While it has many benefits – particularly in making household budgets stretch further – it has implications for wage increases.    

“Over the last four years, the average wage has increased from around $49,500 to $55,500. Wages are expected to continue to outpace inflation, but if inflation remains low the dollar value of future wage increases may be smaller than previously expected,” Mr English says.

“This is particularly true in the public sector. Lower inflation means the Government will have to work even harder to control its spending to get its books back in surplus, so public sector wage rises will remain restrained.

“Although there is continuing global economic uncertainty, New Zealand is doing well and New Zealanders are reaping the benefit of their hard work. Despite these good economic conditions, there will be no loosening of the Government’s purse strings.

“The Government remains committed to delivering better public services while staying on top of spending, as we have done over the last two parliamentary terms,” Mr English says.