Covid 19: Government faces cost-of-living crunch as Auckland stuck in lockdown

New Zealanders’ cost of living is rising at its fastest quarterly rate since the inflation-plagued 1980s as the Government continues to grapple with supply chain snafus, shortages of both goods and labour, and a complicated path to a post-lockdown New Zealand.

Prime Minister Jacinda Ardern announced Auckland would remain in lockdown to combat Covid-19 for at least another two weeks on Monday, and signalled that the Government will finally release a vaccine target for the country on Friday.

That target could see restrictions loosened but is unlikely to be reached imminently, as Ardern said it was going to be very high.

Meanwhile, Reserve Bank Governor Adrian Orr has overshot the inflation target, as Statistics New Zealand announced its Consumer Price Index grew a hefty 2.3 per cent in the September quarter, and 4.9 per cent over the year. It is the biggest quarterly rise since 1987 and the biggest annual rise for a decade.

READ MORE:
* ANZ and Kiwibank raise mortgage rates after Reserve Bank hikes OCR to 0.5%
* Reserve Bank delays interest rate hike because of Delta outbreak
* The 'elephant in the room' in New Zealand's housing crisis

The Reserve Bank is charged with keeping inflation between 1 per cent and 3 per cent. Most bank economists now predict the Bank’s interest rate to rise over the next few Reserve Bank meetings, possibly to as much as 1.5 per cent by mid-2022.

BNZ said in a note that the Reserve Bank was “well and truly behind the curve”. The bank also warned that inflation could be far less temporary than some believed.

This could see a serious crunch to consumer spending as interest rates rise and Covid-19 restrictions in the country’s largest city keep the economy lagging.

The Government will review Waikato’s level 3 lockdown on Friday but will keep Auckland in level 3 for at least another two weeks.

On Friday Ardern will also unveil a new traffic light system that will eventually replace the alert level system, and vaccine targets that the country will need to meet before this system is brought in. One target will be set for Auckland, and another will be set for the rest of the country.

“The target will be high, to give us the greatest confidence possible," Ardern said.

“We've looked closely at the evidence from overseas, what works and what doesn't. We'll be aligning our target with those countries that have managed the transition from restrictions to vaccination in the safest way possible.”

Director-General of Health Dr Ashley Bloomfield said he did not expect Auckland to reach 90 per cent double dosed for around another month.

Stuff understands a “green light” under the new system would mean almost no restrictions on travel, gatherings, and businesses operating. At orange, face masks would be required and capacity limits would kick in for venues. And at red, private gatherings would be limited and inter-regional travel restricted.

Ardern and Bloomfield hit back at those calling for a so-called level 4 “circuit breaker” in Auckland, claiming that there was not enough evidence that further lockdowns would work to bring Covid-19 under control in Auckland.

“The view amongst those closest to the outbreak is that this increase of restrictions would not necessarily reduce cases significantly more than the level three restrictions we already have,” Ardern said.

The government is also expected to make the first announcement on how it might change its border settings this week. Case numbers are expected to rise in Auckland, while very few Covid positive cases are coming through the border.

Living cost pressure

The Government will now be under renewed pressure to bring living costs down.

Inflation has been driven by a massive 12 per cent annual increase in building costs.

The Government has been keen to claim higher wages as a part of its economic response to Covid, but higher labour costs are now being passed onto New Zealand consumers, particular in building Stats NZ said in its release.

“Construction firms reported that it is hard to get many materials needed to build a house, and that there are higher labour and administration costs,” the release said.

Vegetable prices rose 19 per cent, petrol prices 6.5 per cent fuelled by global oil prices rising to their highest level in three years. Oil prices have shot up on expected supply shortages as the Western world starts to shake off Covid-19 restrictions and travel more.

At the time of writing, West Texas Intermediate was trading at $US83 per barrel. At the start for the year it was trading at $US50 per barrel.

Council rates went up an average 7.1 per cent, as a catch-up to lower-than-usual rate increases in 2020 due to Covid-19.

Inflation in the non-tradables sector – the part of the economy that doesn’t face foreign competition – rose by 4.5 per cent.

“Underlying inflation is too high, and further removal of monetary stimulus is needed to get things back on an even keel. With lockdown creating downside risks to employment and growth, uncomfortable trade-offs could quickly emerge,” ANZ Bank economists Finn Robinson and Sharon Zollner wrote in a note to clients.

“But with inflation this strong, the Reserve Bank won’t want to play fast and loose with their inflation-targeting credibility.”