Today’s 25 basis point hike of the Official Cash Rate (OCR) will further exacerbate the cost-of-living crisis for NZ households, according to FIRST Union.
“It’s deeply troubling to see the Reserve Bank continue to hike rates in response to a budget that projects a 2 percent decline in Crown spending as a percentage of GDP, where 80 percent of the operating allowance just covers the costs of keeping up with inflation,” said FIRST Union Researcher and Policy Analyst Edward Miller.
“While many of the previous sources of inflation are clearly receding – including supply chain disruptions, and the price of imported fuel and building materials – there is emerging evidence that rising interest rates are prolonging the cost-of living-crisis.”
“The household living costs price index shows us that 23 percent of the direct increase in prices experienced by households over the twelve months to March 2023 have come from rising interest rates.”
“However, the indirect impacts of rising rates are even greater. Food prices are now leading inflation, with the food price index running at 12.5%, and the latest Farm Expenses Price Index shows that more than half of the rising costs faced by NZ farmers are coming from rising interest rates.”
“The very same interest rate hikes that are supposed to be bringing down inflation are instead adding costs to NZ households and businesses, exacerbating the cost of living crisis.”
Mr Miller said it was time for Government to seriously consider whether Reserve Bank’s approach is still fit for purpose.
“Households across the country are straining under the impact of rising food and housing costs, and the rate of residential building consents is collapsing in the middle of an ongoing housing crisis,” said Mr Miller.
“At the same time, interest rates hike are further boosting the largesse of depositors, magnifying the wealth divide.”
“There are plenty of alternative approaches to controlling demand that don’t punish the most vulnerable – it’s time for a serious exploration of those options.”