Inflation spike feeds rumours – is it time to fix your loan rate?
The reasoning behind four consecutive interest rate rises came into sharp focus this month when annual inflation hit 6.9% in the March quarter – its highest level since June 1990.
Fast-rising rents, higher prices for utilities, petrol, second-hand cars and construction materials pushed the Consumer Price Index higher, beating the December quarter’s year-on-year rise of 5.9%.
The construction costs for new homes and renovations jumped 18%, representing the steepest hike since NZ Stats began collecting this data in 1985.
The Reserve Bank of New Zealand (RBNZ) has raised its target interest rate four times to 1.5%.
Last week, Westpac told the Bloomberg news agency that it expects the RBNZ to increase rates by 0.5% at each of its next three policy meetings.
This would take the cash rate to 3.5%.
The Westpac prediction signals to homeowners that it might be time to reassess their home loan and consider a fixed interest rate during this unique period when prices are surging due to global supply chain issues caused by Covid-19.
New Zealand isn’t the only nation suffering from higher prices. OECD countries recorded an average inflation rate of 7.7% for the year to March 31.
The rates for the US and UK are 8.5% and 9.0% respectively, and interest rates have been on the rise in both countries.
Despite the RBNZ being proactive with its cash rate management, there appears little sign of prices calming in the short term.
Senior prices manager at NZ Stats, Aaron Beck, said: “Construction firms have been experiencing many supply-chain issues, higher labour costs, and also higher demand, which have pushed up the cost of building a new house”.
NZ Stats found petrol prices increased 32%, the largest annual increase since the June 1985 quarter.
Mr Beck said petrol prices increased steadily in January and February, and in the second week of March, ‘91 petrol’ cost $3.05 at the pump. Prices dropped following a 25c reduction in fuel excise, which the Government is expected to retain for three months.
“Fuel prices are volatile,” Mr Beck said.