Spending power is shrinking while govt rearranges the microeconomic deckchairs

Notice  the  pay  packet  doesn’t  go  quite as far as  it  did, say, six months  months ago?

And if this be the case, is it  just because the  price of petrol  has  surged  skywards?

Back in  March the national price  of petrol was around $2.08 a litre for  91 octane. Now  it’s  about  $2.40 a litre,  probably  more in Auckland  where the regional  fuel  tax  of  11.5c  litre  was applied in  July.

It’s  not surprising  the  cost of petrol  has  moved up  sharply. Statistics  NZ  reported  that in the June 2018 quarter, higher prices for imported crude oil increased the costs paid by the petroleum and coal product manufacturing industry (up 11.3 %).

The effect  of  the  falling  NZ  dollar  against the greenback has  compounded  the impact.  And the prospect  the US Federal Reserve  will  raise the core  interest rate  at its next meeting this  month suggests the  US dollar will continue  to strengthen.

It’s therefore likely the  NZ  dollar’s  slide  from US72.9 cents  last March to  US65.15c this week  will not end there.

But  it’s  not  just the   cost  of filling up the family car with petrol that is squeezing   pay packets.

In the June  quarter  the costs of petrol bought by businesses was up 5.5% while diesel costs were up 9.8%. These higher costs for fuel flowed to other industries.

For example, input prices for the road transport industry rose 2% in the June 2018 quarter, mainly due to higher petrol and diesel prices. The  impact  quickly  filters  through to  distribution costs for manufacturers and   wholesalers.

Even if you are living  in a place distant  from  Auckland, but  shop  for goods  from  there, you’ll  feel the   impact of  the  regional  fuel  tax.

The  fall in the  NZ dollar  is  good  news for  NZ  exporters,  of course.  But it’s  not so good  for importers.

Goods  on the water  now from overseas  suppliers will be  costing more  by the time they  reach  the shops.  That, too,  will  contribute to the shrinkage of the spending power of the weekly  take-home pay packet.

New  Zealanders   these  days  like to  eat  out  a  lot:  but  eateries – most of which have  found their  wages  bills rising because  of  increases in the minimum  wage – will have to push up their prices  as  their  suppliers  seek to cover their  rising  costs.

All this underlines  a point that former Finance Minister Steven  Joyce  was making the other  day  – that microeconomic policy (arguably) has a bigger effect in New Zealand than in larger countries.

We are a small country far away from the rest of the world. Our businesses are smaller and margins here are much tighter than in the US or Europe, so policy changes that get shrugged off in bigger countries really hurt our nation of small businesses.  Our government is currently rearranging, often negatively, not one or two but nearly every aspect of microeconomic policy. 

“Employment law, resource law, company taxes, innovation settings, immigration settings, the infrastructure plan, it’s all being thrown up in the air at once, and not surprisingly kiwi firms are taking fright”.

2 thoughts on “Spending power is shrinking while govt rearranges the microeconomic deckchairs

  1. The effect of Auckland’s regional fuel tax is being felt far from Auckland – in both higher costs of distributing Auckland sourced products and just simply buying fuel. Micro-economic decisions by fuel companies across the country mean they have been able to lift prices outside of Auckland and not have to funnel 11.5 cents per litre to Phil Goff. For the Government to think Auckland prices would be ring fenced shows how little they understand of micro-economics. We are watching a perfectly good economy get ruined.


  2. There is more coming. The poor grain yields in Australia this year, USA and Europe, season ending are leading to higher prices. Flour, bread, chicken prices will rise – some industry people suggesting by 20% – over the next few months.

    May have to walk to Maccas and have fries only.


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