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Intersting article in this morning's Sunday Star Times:
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Intersting article in this morning's Sunday Star Times:
Taming inflation
SUNDAY , 23 JANUARY 2005
You can't stop the cost of living rising, but you can slow it, down. ROB STOCK reports.
So inflation last year was 2.7%, a little higher than experts were expecting.
You won't be alone if that smallish rise doesn't come close to explaining why the costs of living seem to be expanding at a faster rate than your pay packet.
Officially, wages rose by just over 4% last year, so we should all be able to brush off inflation with a smile, but it's not happening that way for many families.
That's because the Consumer Price Index (CPI) is effectively a national lie, a quandary reflected in official fears that unless more accurate measures are devised, the public will cease to give any credence to inflation figures.
A quick look shows petrol jumped 13% last year. Electricity went up an average 8.8%. Local authority rates climbed 3.9% (though in the year to the end of September they jumped nearly 7%). The costs of renting rose 2.8%. The costs of actually owning a home were up 6.5% (though the cost of buying a house, or having one built jumped 7.3%). Tertiary fees were up 3.6%. The costs associated with putting a child through private schools rose 4.2%.
Even fun costs more than it did a year ago - leisure services jumped 1.9%.
So where does the 2.7% figure, keeping the Reserve Bank happy (it aims to keep inflation between 1-3%), come from?
The answer, says Bank of New Zealand chief economist Tony Alexander, is that CPI is a national average taking into account price rises and falls in places as diverse as Stewart Island and Auckland's Remuera.
Measured four times a year, inflation is calculated from the ongoing Home Expenditure Survey, in which 2854 Kiwi households in 15 urban areas (around 30% of which are in Auckland) keep diaries of their spending patterns.
But because it's an average personal cost of living, which depends on lifestyle and spending choices, everyone's inflation is different, says Alexander.
Aucklanders will generally feel that inflation figures under-represent rises in their cost of living, though they do get paid better.
Socio-economic subgroups will also find inflation figures are distorted. Take superannuitants, who used to have their own CPI index, who are disproportionately hit by rising healthcare bills.
And some of the biggest costs, like mortgage interest, are not even covered, so when mortgage rates rise, they are not reflected in the CPI at all. And a 1% rise in the cost of a $150,000 mortgage is around $1,500 a year.
Work is underway at Statistics New Zealand to create a series of regional CPI measures, to make inflation measures fit the public reality more closely, but they are dependent on Statistics NZ getting extra money to pay for them.
But are there strategies households can use to beat inflation?
Alexander thinks so. He recommends knowing what you spend and then comparing those figures to official inflation stats.
If you find that your power bill has gone up by 15% and yet the stats say the average rise was 8.8%, it may be time to pop on to www.consumer.org.nz/powerswitch to work out if you would be better off with another provider. Or, it could be a wake-up call for you to change your energy-wasting ways.
Here are Sunday Star-Times' tips for beating inflation:
Those that have shall receive: Own assets. The values of financial assets such as homes and share investments generally rise faster than inflation. Own them and inflation means money in the bank.
* Don't keep cash in low interest accounts: If you have thousands in your transaction account, more fool you. Inflation of 2.7%, tax on interest, account levies and transaction fees, mean less than 4% interest is basically worthless, leaving your money treading water.
Don't pay top dollar: Compare prices from providers from gas and electricity suppliers. Bargain like crazy in shops.
Cut back: Does that sound negative? It shouldn't. For example, 40% of your power bill is for water heating - put an insulating jacket on your boiler.
Be a smarter spender: A lot of spending does very little to improve your lifestyle (will one more dress really make you happier? Is that your fifth cafe coffee of the week?) Deflate your spending, and you'll have more cash left at the end of the month.
Ask the boss for a pay rise: Recent employee confidence figures show huge confidence among workers. Bosses are optimistic too, so put the squeeze on them for a pay rise. If you're good, they'll be loathe to lose you when unemployment is hovering around 3%.
SUNDAY , 23 JANUARY 2005
You can't stop the cost of living rising, but you can slow it, down. ROB STOCK reports.
So inflation last year was 2.7%, a little higher than experts were expecting.
You won't be alone if that smallish rise doesn't come close to explaining why the costs of living seem to be expanding at a faster rate than your pay packet.
Officially, wages rose by just over 4% last year, so we should all be able to brush off inflation with a smile, but it's not happening that way for many families.
That's because the Consumer Price Index (CPI) is effectively a national lie, a quandary reflected in official fears that unless more accurate measures are devised, the public will cease to give any credence to inflation figures.
A quick look shows petrol jumped 13% last year. Electricity went up an average 8.8%. Local authority rates climbed 3.9% (though in the year to the end of September they jumped nearly 7%). The costs of renting rose 2.8%. The costs of actually owning a home were up 6.5% (though the cost of buying a house, or having one built jumped 7.3%). Tertiary fees were up 3.6%. The costs associated with putting a child through private schools rose 4.2%.
Even fun costs more than it did a year ago - leisure services jumped 1.9%.
So where does the 2.7% figure, keeping the Reserve Bank happy (it aims to keep inflation between 1-3%), come from?
The answer, says Bank of New Zealand chief economist Tony Alexander, is that CPI is a national average taking into account price rises and falls in places as diverse as Stewart Island and Auckland's Remuera.
Measured four times a year, inflation is calculated from the ongoing Home Expenditure Survey, in which 2854 Kiwi households in 15 urban areas (around 30% of which are in Auckland) keep diaries of their spending patterns.
But because it's an average personal cost of living, which depends on lifestyle and spending choices, everyone's inflation is different, says Alexander.
Aucklanders will generally feel that inflation figures under-represent rises in their cost of living, though they do get paid better.
Socio-economic subgroups will also find inflation figures are distorted. Take superannuitants, who used to have their own CPI index, who are disproportionately hit by rising healthcare bills.
And some of the biggest costs, like mortgage interest, are not even covered, so when mortgage rates rise, they are not reflected in the CPI at all. And a 1% rise in the cost of a $150,000 mortgage is around $1,500 a year.
Work is underway at Statistics New Zealand to create a series of regional CPI measures, to make inflation measures fit the public reality more closely, but they are dependent on Statistics NZ getting extra money to pay for them.
But are there strategies households can use to beat inflation?
Alexander thinks so. He recommends knowing what you spend and then comparing those figures to official inflation stats.
If you find that your power bill has gone up by 15% and yet the stats say the average rise was 8.8%, it may be time to pop on to www.consumer.org.nz/powerswitch to work out if you would be better off with another provider. Or, it could be a wake-up call for you to change your energy-wasting ways.
Here are Sunday Star-Times' tips for beating inflation:
Those that have shall receive: Own assets. The values of financial assets such as homes and share investments generally rise faster than inflation. Own them and inflation means money in the bank.
* Don't keep cash in low interest accounts: If you have thousands in your transaction account, more fool you. Inflation of 2.7%, tax on interest, account levies and transaction fees, mean less than 4% interest is basically worthless, leaving your money treading water.
Don't pay top dollar: Compare prices from providers from gas and electricity suppliers. Bargain like crazy in shops.
Cut back: Does that sound negative? It shouldn't. For example, 40% of your power bill is for water heating - put an insulating jacket on your boiler.
Be a smarter spender: A lot of spending does very little to improve your lifestyle (will one more dress really make you happier? Is that your fifth cafe coffee of the week?) Deflate your spending, and you'll have more cash left at the end of the month.
Ask the boss for a pay rise: Recent employee confidence figures show huge confidence among workers. Bosses are optimistic too, so put the squeeze on them for a pay rise. If you're good, they'll be loathe to lose you when unemployment is hovering around 3%.
Regards