Inflation, inflation, inflation
Smooth The Road: Plan & Invest. Edition Seven, March 2023.
Inflation has been one of the hottest topics in the news lately, affecting New Zealanders in many ways. The country is currently experiencing its highest inflation rate in over a decade, with the Consumer Price Index (CPI) rising by 7.2% for the 12 months to the December 2022 quarter. This has led to a cost-of-living crisis that is hitting low-income households particularly hard.
Inflation occurs when the general level of prices for goods and services rises, and it can have significant impacts on the economy and society. You might have already noticed these increases at the supermarket, petrol station, or when paying your power bill. The recent surge in inflation in New Zealand is mainly due to a range of factors, including global supply chain disruptions caused by the COVID-19 pandemic, higher demand for housing and construction materials, and a shortage of workers in certain industries.
One major factor contributing to the current inflation is the global supply chain disruptions, which have led to higher prices for imported goods. These disruptions have been caused by factors such as port closures, container shortages, and a lack of shipping capacity. As a result, businesses are facing increased costs for raw materials, which are being passed on to consumers in the form of higher prices.
The impact of inflation is not evenly spread across society. It can be particularly difficult for low-income households, who spend a higher proportion of their income on necessities such as food and rent. Inflation can also reduce the purchasing power of savings, affecting retirees and those on fixed incomes. Additionally, high inflation can lead to wage pressures, as workers demand higher pay to keep up with the rising cost of living.
The Reserve Bank of New Zealand has responded to the recent surge in inflation by raising the official cash rate to 4.75%, with further rate hikes expected. The government has also introduced measures to address supply chain disruptions and increase the supply of affordable housing. It is hoped that these policies will help to bring inflation under control over the coming years.
However, inflation is a cancer that can devastate our financial health and have a significant impact on our finances. It reduces the purchasing power of our money, making it more difficult to maintain our standard of living. It can also lead to higher interest rates and increased volatility in financial markets.
This is why we believe financial advice is crucial in helping individuals navigate the challenges of inflation. By providing advice on budgeting, investing, and risk management, financial advisers can help clients understand the impact of inflation on their financial goals and develop strategies to mitigate its effects. If you're worried about how inflation is affecting your financial planning, we encourage you to get in touch with your financial adviser to work out a strategy personalized to you.
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