Inflation hits 1.9%

Kiwiblog reports that inflation is slowly creeping upwards, with the level reaching 1.9% in September 2018. quote.

The consumers price index (CPI) increased 1.9 percent in the September 2018 year, driven by higher petrol prices, Stats NZ said today.

This follows a 1.5 percent annual??rate for the June 2018 year. For the September 2018 quarter, the??rate was 0.9 percent.

?Petrol prices increased 19 percent in the September 2018 year,? prices senior manager Paul Pascoe said. ?This is the highest annual increase since June 2011.? ? end quote

When you have a government that does not understand basic economics, this is what happens. They failed to see that the fuel taxes would cause inflation. To be fair, this is Economics 101, but I’m not sure if anyone in this government is qualified even that far. Fuel taxes push up the price of fuel. As just about all consumer goods have to be trucked, this will increase the price of everything. I’m not sure that this government fully understood that this was always going to be the consequence of their actions. How could they when the prime minister does not understand the difference between GDP and the Crown accounts? We are a little bereft of talent in this department. quote.

A 3.5 cents per litre nationwide increase in petrol tax was introduced on 30 September. The effects of this price increase will be seen in the December 2018 quarter.

So the excise tax increase not yet taken into account. end quote.

That is not the only thing that has not yet been taken into account. The dollar has fallen recently, due to a couple of factors. The first is a lack of business confidence. The second is a US dollar that is steaming ahead. For all that Jacinda dislikes Trump, she could learn a few things from him. He has stimulated the US economy to unprecedented levels in just two years. Add to that the fact that global oil prices have shot up recently. This is not a particular surprise, and prices for oil have not reached unprecedented levels either, so there may be more increases on the horizon. This will continue to push up the price of everything. In short, 1.9% inflation is the start of a slippery slope – upwards, as it turns out. quote.

1.9% inflation isn?t too bad. But if it starts to exceed 2%, then the Reserve Bank might look towards hiking interest rates, which will hit home owners. end quote.

The Reserve Bank mandate is to keep inflation between 1% and 3% to keep the economy on an even keel. In the last decade, there have been very low levels of inflation. Much of the world still has low levels of inflation. By the time the December quarter results are out, we are likely to be pushing the 3% limit. Once that starts to happen, the Reserve Bank has no choice. Monetary policy is a blunt instrument. Inflation is controlled by interest rates, and nothing else.

I know I bang on and on about this, but it is important. We know a hell of a lot of homeowners have large mortgages with low interest rates. Once rates are pushed up by rising inflation, homeowners are going to have less money in their pockets… or should I say, even less money than they do now. A 1% increase in mortgage rates on a $600,000 mortgage is about $500 per month. And that is on top of higher fuel prices, more expensive groceries, and everything else.

Things are going to get harder next year. Lots of people on low incomes are struggling now. We already have a class of people known as the ‘working poor’. Are we about to see such a thing as poor middle-class people as well?

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