Rent and food prices surge
When it comes to costs of living, few items matter as much to households as the prices they pay for food and the price they pay for rent.
When it comes to costs of living, few items matter as much to households as the prices they pay for food and the price they pay for rent. Unless a household can afford to buy their own house, these items are non-negotiable can cannot be substituted. Food price increases are inescapable, and they are a major burden for low income households.
This article looks at the recent changes in the food and rent price indexes from Stats New Zealand comparing the prices of January 2021 to January 2022. Then these changes are looked at in a long term scope. What we find is that the cost of living is going up faster than before, which sets a concerning tone for the year ahead.
The cost of living is going up faster than before, which sets a concerning tone for the year ahead.
First let’s talk about rent prices. The “flow” in the rental price index is the price change for new tenancies starting in the referenced month. This value is more volatile than the stock value due to its smaller sample size. The stock value takes account of both new and existing tenancies and it measures the price change across the whole rental sector for that time period.
The flow price in January 2022 increased by 0.7 percent when compared to December 2021. The annual increase from January 2021 to January 2022 was by 5.5 percent. The stock price increased by 0.3 percent in January 2022 from December 2021, and increased by 3.6 percent from January 2021 to January 2021.
Looking at the last three years, we can see that the flow price of rent often increases more than it decreases, and the stock prices have only increased in this period, although this amount varies. The worst time to start a tenancy is in the spring to summer months as this is where the highest increases in flows tend to happen. Early to mid-winter tends to see the most significant rent flow decreases.
Food prices are also increasing.
The price for food increased by 2.7 percent December 2021 to January 2022. Fruit and vegetable prices increased by 9.9 percent from December 2021, and Meat, poultry and fish increased by 3.6 percent. Fruit and vegetable prices typically increase in this season, so when seasonal increase is adjusted for, the increase is still significant at 6 percent. Looking at annual data the increase over the last year is concerning as we can see the largest annual increase in food prices in the last three years.
Now let’s put these indexes together. From this we get the story of how prices have increased in New Zealand over the last fifteen years.
Rent prices started being measured on the last quarter of 2006. This graph compares the percentage increases or decreases of the Food, Rent and Consumer Price (CPI) indexes. Rent and food prices are measured monthly, and the CPI is measured quarterly.
Rent has been steadily increasing at more-or-less the same rate since 2011. Food prices fluctuate seasonally but generally increase in the long term. The CPI goes through sharp increases followed by lull periods, and appears to be sharply increasing in recent quarters, likely aided by the significant increases in fuel prices in the last year. Clearly, rent prices have been steadily outrunning other costs of living for quite some time. Renters throughout the country are already painfully aware of this. Unfortunately other costs of living appear to be closing this gap.
Rent prices have been steadily outrunning other costs of living for quite some time.
The effects of the pandemic are in full swing, and the effects of inflation, the housing market boom and international food logistic issues are all taking their toll on New Zealand households. Renters who are excluded from rocketing housing capital increases are paying the price through ever increasing rents. Those with stagnant wages are undoubtedly paying more now to live than before in the last couple of decades and will be saving less. Lower income households will be hurt the most, as they have little to no disposable income to protect themselves from such surges. Higher income households may weather the storm, and will be effected even less if they own their own home. Rent controls are off the table for the meantime, but these increases suggest that costs of living are showing no signs of easing.