Higher accommodation prices contribute to inflation

Higher prices for domestic accommodation, building a new home, and used cars led to a 0.5 percent lift in the consumers price index in the December 2020 quarter, keeping annual inflation at 1.4 percent, Stats NZ said today.

On a quarterly basis, domestic accommodation services were the top contributor to the CPI increase, up 20 percent in the December 2020 quarter, despite the impact of the COVID-19 pandemic on international tourism.

Year endedPercentage change

Annually, prices for domestic accommodation services increased 6.2 percent.

“Domestic accommodation services include prices for hotels, motels, caravan parks and camping grounds, and privately rented accommodation like Airbnb and Bookabach. Prices increased across all these categories in the December 2020 quarter,” prices senior manager Aaron Beck said.

“We saw lower price levels for domestic accommodation in the June and September 2020 quarters, which coincided with a campaign to increase domestic tourism after COVID-19 lockdowns. The December 2020 quarter seasonal price rise, which took prices to near normal levels, therefore resulted in a larger than usual percentage change movement.”

COVID-19 travel restrictions have meant that Kiwis who planned to go overseas are now travelling more domestically, or looking to upgrade their cars, furniture, and electronics.

“All these items had price rises in the December quarter, affected by a combination of factors including seasonality, increased demand, decreased supply, and fewer specials,” Mr Beck said.

Prices for used cars also rose this quarter, up 4.6 percent, the largest quarterly rise since the December 1997 quarter.

However, overseas travel between Sydney and Auckland increased substantially in the December quarter and so this route was reintroduced to the CPI. Prices for this route were up strongly and accounted for nearly 0.1 percent of the 0.5 percent rise in overall inflation this quarter.

See Impacts of COVID-19 on methodology for the December 2020 quarter CPI for more information on reintroducing prices for missing items to the CPI.

Increases in furniture and furnishings (up 7.2 percent), audio-visual equipment (up 12 percent), and telecommunications equipment (up 8.0 percent) also contributed.

“We also saw price rises for beds, TVs, and cellphones this quarter,” Mr Beck said.

“There were fewer specials for furniture in the December quarter than in the September quarter. However, due to the timing of our field price collection in mid-November, Black Friday sales are not likely to be included. Prices for TVs and cellphones include any Black Friday specials as we use data for the whole of November.”

See Shoppers dial up Black Friday deals for more information on Black Friday spending.

These rises were partly offset by vegetable prices (down 22 percent in the December quarter), influenced by seasonal falls for tomatoes, lettuce, cucumber, and capsicums.

“Vegetable price fell in October and November before rising slightly in December, while fruit prices were up throughout the quarter,” Mr Beck said.

Despite falls in vegetable prices in the December quarter, they were higher than this time last year after many reached record high prices over winter. See More expensive fruit and vegetables boost food prices in 2020 for more information on food prices.

Construction costs pick up

The cost of building a new house rose 1.3 percent in the December quarter, the biggest quarterly rise in more than two years. Annually, purchase of new housing increased 3.3 percent.

“Quarterly new housing price inflation has picked back up after remaining at 1 percent or below since December 2018,” Mr Beck said.

“The quarterly rise of 1.3 percent is the largest rise since September 2018 quarter when prices also rose 1.3 percent.”

Year endedPurchase of new housingRentals for housing

Prices for building new houses in the CPI are obtained by surveying construction companies that build standard-plan houses. The inflation of existing house prices is not included in the CPI as household-to-household transactions are out of scope. Land purchases is also excluded as it is considered to be an investment and therefore out of scope.

The rising cost of building a new house coincides with record levels of new homes consented in the North Island. See New homes consented reach record numbers in North Island for more information.

Rent prices rose 0.5 percent in the December quarter. Annually, rents increased 2.9 percent.

Regionally, rental prices increased 1.3 percent annually in Auckland, 4.9 percent in Wellington, and 1.5 percent in Canterbury.

Annual inflation remains steady at 1.4 percent

Annual inflation for the year to December 2020 was 1.4 percent, rising at the same pace as it did last quarter (1.4 percent in the year to September 2020). Annual inflation remains relatively stable despite overall price rises in the past two quarters which were partially offset by an overall fall in the June quarter as the COVID-19 pandemic first hit.

Domestic or non-tradable inflation increased 2.8 percent in the year to December 2020, after increasing 2.6 percent in the year to September 2020. Non-tradeable annual inflation has averaged almost 3 percent for the past two years.

The latest annual increase in domestic inflation was influenced by higher prices for cigarettes and tobacco, rentals for housing, and purchase of new housing, offset by lower prices for telecommunication services.

Annual tradeable inflation decreased 0.3 percent influenced by falling prices for petrol.

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