Consumers Price Index explained: Who is hit hardest by CPI inflation? – Mark Lister
Inflation is always a hot topic in financial markets, and it will be even more prominent as fuel prices push it higher over the next quarter or two.
There’s a healthy cynicism about our official inflation figures, and many people would argue their own cost of living has increased more than these would suggest.
In New Zealand, the key inflation measure is the Consumers Price Index (CPI), which is calculated by Stats NZ.
It measures the changes in the cost of living that households are facing, by tracking the prices of individual items that make up a representative basket of goods and services.
At present, this includes 598 items.
Each quarter, Stats NZ collects about 100,000 prices by visiting supermarkets and many other shops.
It sends surveys to a range of businesses and looks at websites to collect evidence of where current prices are at.
Stats NZ reviews the basket every few years to ensure it remains relevant, given our spending patterns change over time.
Delving into the adjustments in the CPI basket over the decades is fascinating, nostalgic and it highlights some of the consumer trends we’ve seen come and go.
Saveloys and audio cassettes were added in the 1970s, waterbeds and wine coolers in the 1980s, and soy milk and hummus entered the fray in the 2000s.
Vaping devices and home exercise equipment were added in 2020, while meal kits and streaming services were included at the most recent update in 2024.
Lots of items have been removed over the past 30 years too, such as compact discs, cordless telephones and dictionaries.
Home telephone line rentals and national toll calls were scratched from the basket at the last review.
Today, housing and household utilities is the most dominant category at almost 30%, followed by food at 18.5% and transport at 14.3%.
As one would expect, these necessities of life represent more than 60% of the CPI basket.
Using a representative basket like this is a reasonable way of gauging our overall change in living costs although, like all one-size-fits-all solutions, it doesn’t accurately reflect everyone’s situation.
The basket is 10% more expensive than it was three years ago, but there are some big divergences between the items in it.
While the price of cars, furniture, household appliances and AV equipment has either remained stable or fallen, many of life’s necessities have moved sharply higher over this period.
Inescapable expenses like rates, insurance and household energy costs are up 25-33%, while groceries and meat have risen double digits.
Segments of society that spend a much greater proportion of their budget on life necessities have been hit much harder than others.
Stats NZ understands this, and it releases a Household Living-costs Price Index that attempts to estimate the change in the cost of living for different groups within our society.
The highest income groups have seen a below-average increase in living costs, most likely because they can buy many of the discretionary products that have become more affordable in recent years.
In contrast, the lowest income group has faced a higher increase in the cost of living, as have beneficiaries, superannuitants and Māori.
In recent years, rising prices have been most impactful for those least able to avoid them.
The annual inflation rate is sitting at 3.1%, and the next update, covering the June 2026 quarter, is due mid-year.
The oil-induced spike in pricing pressures hasn’t fully shown up yet, but it certainly will in the upcoming two quarters.
It’ll likely start with a four, which would be double the midpoint of the Reserve Bank’s 1-3% target range.
Let’s hope it doesn’t stay up at those levels too long, because while we’re all impacted, the more vulnerable parts of society will feel the pinch most.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.