Source: Radio New Zealand
ANZ spending data showed a large drop in grocery spending and a spike in fuel spending. RNZ / Quin Tauetau
The fuel crisis has brought with it a spike to many household expenses and one economist says we could be headed into “choppy waters”.
Prime Minister Christoper Luxon recently said even if a resolution were to happen today regarding the Strait of Hormuz, there would be at least six months of “bumpiness” ahead.
“Just in terms of the lag effect of the supply chain and how it all hangs together,” Luxon said speaking from Singapore.
ANZ Spending data out on Tuesday showed an unusually large drop of 1.4 percent in grocery spending for the month of April, with spending at the petrol pump up 22 percent since February.
Economist Cameron Bagrie told Checkpoint it’s reasonable to think there is at least six months of bumpiness awaiting kiwis.
“We’re obviously heading into choppy waters, and it’s very obvious inflation is heading up.
“The economy is likely to have gone backwards in the June quarter. We kind of hope this is a temporary diversion for the economy.”
With prices up for fuel, he said it’s no question that people will be substituting in other areas.
Bagrie said households were not simply being hit with a fuel or energy shock.
“General inflation across New Zealand was heading up prior to getting whacked with high fuel prices.”
“Electricity bills up 12 percent on a year ago. Your rates, well they’re hitting up at sort of double-digit numbers. Your medical insurance is 20 percent plus.”
He said the country was experiencing an “underlying inflationary undercurrent” which had been eating into people’s “disposable spending power”.
This existing issue now had the added layer of a fuel shock.
He said even prior to the current crisis the Ipsos monitor had indicated the biggest concern for households was inflation and the cost of living.
“Headline inflation was already 3.1 percent, the core inflation was two and a half to three.
The average individual in the street doesn’t certainly believe that inflation is around 3.1 percent, they will likely to say it’s around 4 to 5.”
He said now with the crisis people’s perception of inflation will likely change and it would be interesting to see the composition of people’s spending, particularly in grocery stores.
“Unfortunately, a lot of stuff we substitute away is from things such as fruit and vegetables, which are pretty essential to everybody’s diet.”
He noted that there had been a big surge in fertiliser prices around the world which would inevitably have an impact on food production system internationally.
Bagrie said international food prices were up 2.4 percent in the month of March and with the April number coming soon another increase is likely to be reflected.
On a more positive note, he said equities had been “pretty cheerful” over the last few weeks.
“Now, whether that’s more hope than substance, maybe people are thinking that the boost from AI is going to outweigh the negativity from what we’re seeing within the Middle East.”
Employment numbers were also more positive in February and March, but Bagrie said this was an indication that the economy was picking up before the current crisis.
With new numbers coming out soon, they may reveal something different.
“That story is now dated. It’s gone. We need to deal with a completely different economic scenario.”
Bagrie said while hopes were that this crisis comes to an end by this year, there was no certain timeline.
“And as the Prime Minister points out, it might be a six-month diversion. But the truth is that nobody really knows.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand