Inflation rates and the cost of living have steadily increased in New Zealand in recent times. In the first quarter of 2023, the consumer price index had risen by around 6.7 percent, a stark increase in comparison to the 1.5 percent increase seen in the first quarter of 2021. Like the rest of the world, New Zealand has been impacted by the COVID-19 pandemic and its effect on the global economy. In 2022, the Russian invasion of Ukraine was met with global supply chain issues, and inflation rates around the world were sent soaring. Globally, increasing consumer prices are making it harder for households to cover the cost of essentials.
Measuring the cost of living
A rising cost of living typically goes hand in hand with rising inflation rates and with the vast majority of New Zealanders concerned about the cost of living, it is important to understand what it means and how it is measured. The term ‘cost of living’ refers to the measure of prices of a range of everyday items and the amount of money required to cover necessary living expenses, including food, housing, and healthcare to name a few. Several price indices can be used to measure inflation and the cost of living, which vary based on country. In New Zealand, the Consumers Price Index (CPI) and the Household Living Costs Price Index (HLPI) are two common indices used to measure inflation. While the HLPI considers how inflation affects various household groups in the country, the CPI is used to measure the effect of inflation on New Zealand overall. The HLPI, however, is more directly focused on providing insight into the cost of living for households.
To buy or to rent?
New Zealand has one of the highest house-price-to-income ratios in the world. The ratio measures the price of an average home against the average household income of a particular area or country and is calculated by dividing nominal house prices by nominal disposable income per head. Over 50 percent of homeowners in New Zealand consider their mortgage a burden, and over a third are unsure when they will be able to pay off their mortgage. Meanwhile, rent prices in New Zealand are ever-increasing. Auckland, the largest city, is home to both the highest average weekly rent and the highest average residential house price in the country.
Over a third of the nation felt less wealthy in 2022 than they did a year earlier, primarily due to the cost of living. Adding to the pressures of unaffordable housing, soaring inflation rates have increased the prices of other cost of living factors, such as groceries and transportation, making it increasingly difficult for many New Zealanders to cover basic expenses. New Zealanders may experience some relief in the coming years as the inflation rate is expected to decrease, however, salary growth is still failing to keep up with the rising costs of living in the country.
Measuring the cost of living
A rising cost of living typically goes hand in hand with rising inflation rates and with the vast majority of New Zealanders concerned about the cost of living, it is important to understand what it means and how it is measured. The term ‘cost of living’ refers to the measure of prices of a range of everyday items and the amount of money required to cover necessary living expenses, including food, housing, and healthcare to name a few. Several price indices can be used to measure inflation and the cost of living, which vary based on country. In New Zealand, the Consumers Price Index (CPI) and the Household Living Costs Price Index (HLPI) are two common indices used to measure inflation. While the HLPI considers how inflation affects various household groups in the country, the CPI is used to measure the effect of inflation on New Zealand overall. The HLPI, however, is more directly focused on providing insight into the cost of living for households.
To buy or to rent?
New Zealand has one of the highest house-price-to-income ratios in the world. The ratio measures the price of an average home against the average household income of a particular area or country and is calculated by dividing nominal house prices by nominal disposable income per head. Over 50 percent of homeowners in New Zealand consider their mortgage a burden, and over a third are unsure when they will be able to pay off their mortgage. Meanwhile, rent prices in New Zealand are ever-increasing. Auckland, the largest city, is home to both the highest average weekly rent and the highest average residential house price in the country.
Over a third of the nation felt less wealthy in 2022 than they did a year earlier, primarily due to the cost of living. Adding to the pressures of unaffordable housing, soaring inflation rates have increased the prices of other cost of living factors, such as groceries and transportation, making it increasingly difficult for many New Zealanders to cover basic expenses. New Zealanders may experience some relief in the coming years as the inflation rate is expected to decrease, however, salary growth is still failing to keep up with the rising costs of living in the country.
