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New information shows households with lowest living standards face highest price increases

“The new information on prices facing different types of households released by Statistics New Zealand today means we should be even more concerned about inequalities and poverty in New Zealand,” says CTU Economist Bill Rosenberg.

“The new Household Living-Cost Price Indexes show that since June 2008, households with the lowest expenditure per person faced price rises at twice the rate of the highest expenditure households – 18.2 percent compared to 9.1 percent. A typical household experienced prices rising by 12.9 percent over the same period.”

The differences are due to the different goods and services that different types of households buy.

For example lowest income and expenditure households spend much more on rent and energy which went up much faster than other prices, while high income and expenditure households spend much more on interest, and interest rates have been falling.

“Similarly, Superannuitant households faced price rises of 18.9 percent and Beneficiary households faced price rises of 16.0 percent. While New Zealand superannuitants were protected by being indexed to the average weekly wage which rose 27 percent over the period since June, benefits were increased by only 12.0 percent, so beneficiaries fell behind in their living standards as well as further behind the incomes of the rest of New Zealand.”

Over the most recent period available, in the year to September, while a typical household experienced price increases of 0.1 percent according to these new measures, the lowest spending households saw prices rise by 0.6 percent, beneficiaries by 0.8 percent and superannuitants by 0.4 percent. At the end of the scale, the highest spending households saw prices fall by 0.3 percent.

These new measures should be used to re-examine inequality measures which have been based on the CPI, Rosenberg says. They may well show income inequality rising more quickly than previously thought.

Rosenberg concluded: “Statistics New Zealand is to be congratulated on publishing these new statistics. However I still have concern that the rapid rise in the cost of buying a house is underrepresented in these indexes, as it is in the CPI. Nonetheless the new indexes are a major step forward in understanding the pressures facing New Zealand families.”