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Source: MIL-OSI Submissions

Cheaper petrol gives widespread benefit – Media release

27 July 2020

Low- and middle-income households gained the greatest relative benefit from the lower petrol prices that resulted from the COVID-19 global pandemic, Stats NZ said today.

“The typical low- and middle-class households spend relatively more of their total income on petrol than high earners,” consumer prices manager Sarah Johnson said.

“Lower transport prices were the biggest driver for this quarterly fall, with big drops in petrol prices and free public transport in many parts of the country. With a lack of demand for crude oil around the world during the COVID-19 lockdown, crude oil prices on international markets fell sharply in March and April.”

The low- and middle-income households felt the lower petrol prices more than other groups, with quarterly inflation for this group down 0.5 and 0.7 percent respectively.

“The cheaper petrol prices would have offset some of the falls in income that some households suffered during the lockdown when non-essential businesses closed for five weeks,” Mrs Johnson said.

“Many cities around the country offered free public transport until after we returned to alert level 1. This would also have reduced the cost for many workers getting to and from work.”

“Inflation for all households as a group fell 0.6 percent this quarter, the first fall since December 2015,” Mrs Johnson said.

Each quarter, the household living-costs price indexes calculate how inflation affects different groups in society, while the consumers price index (CPI) measures price changes for New Zealanders as one group.

Lower interest rates a boost for top earners

A reduction in the official cash rate (OCR) in March 2020 led to drops in mortgage interest rates in the June 2020 quarter. According to the 2015/16 Household Economic Survey, 85 percent of the highest-earning household group own their homes. This compares with 23 percent of the beneficiary household group, 50 percent of the Māori household group, and 54 percent for the lowest-earning household group.

Annual inflation up 2.0 percent for beneficiaries

Annual cost of living increased 2.0 percent for the beneficiary household group, almost double the rate of all households.

“Annual inflation for beneficiaries increased 2.0 percent for the year ended June 2020, compared with a 1.6 percent increase for Māori and superannuitant households and a 1.1 percent increase for all households,” Mrs. Johnson said.

“Meanwhile, the highest-earning household group had an annual increase of 0.8 percent. This compares with a 1.6 percent increase for the lowest-earning households.”

The main two drivers of these annual increases are rents and food.

Beneficiary and Māori households were the household groups most affected by the increases in rents, with increases of 4.3 percent for beneficiary households and 4.4 percent for Māori households. All households experienced a 3.8 percent increase, with the highest-earning households experiencing a 3.5 percent increase and the lowest-earning households experiencing a 4.2 percent increase.

Rent made up 33 percent of beneficiary households’ expenses, compared with 11 percent for all households.

The June 2020 quarter was a period of high uncertainty due to COVID-19. On 23 March 2020, a six-month rent freeze was introduced for existing tenancies but not new tenancies. This made estimating rent change more difficult than usual, and we are still working to understand the full impact for this quarter and going forward.

Any improvement in the estimate of rent changes in the June quarter will be published in the coming weeks, and we will incorporate any revisions as required.

Excluding the full impact of the rental freeze, quarterly CPI rent prices rose 0.6 percent over the June 2020 quarter. This is lower than the 1.2 percent rise in the March 2020 quarter. These increases in rents were partly offset by the decreasing petrol prices.

Annual food prices also added to the 2 percent increase in annual inflation, with a 3.8 percent increase for all household groups.

“The average household will spend around 20 percent of their income on food,” Mrs Johnson said.

COVID-19 alert system timeline

19 March 2020: New Zealand’s borders close to almost all travellers, except for returning New Zealanders.

25 March 2020 : New Zealand enters COVID-19 alert level 4.

26 March 2020: New Zealand enters rent freeze on residential rent increases and extension of no-cause terminations.

27 April 2020: New Zealand enters COVID-19 alert level 3.

13 May 2020: New Zealand enters COVID-19 alert level 2.

8 June 2020: New Zealand enters COVID-19 alert level 1.

MIL OSI