Why is everything so expensive right now? - Blog - BetterSaver
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Why is everything so expensive right now?

May 23, 2022

Inflation. Right now, it’s the highest it has been since the 1990s. You likely haven’t had to worry too much about it in your lifetime - until now.

We’re all feeling the effects. A 1-kg block of tasty cheese is priced at $21.50. Even if you opt for the cheapest cheese, the average price is $12.31 per kg when this time last year it was $10.41. The average price for 1 litre of 91 octane petrol was $2.67 in March 2022. A year ago, it was $2.00.

What is inflation? Why is it making everything expensive? And how can you deal with it?

Welcome to “Inflation 101” - brought to you by BetterSaver.

What is inflation?

Inflation means the value of the dollar is decreasing - so your dollars buy fewer goods and services than they previously did.

The rate of inflation is measured by the Consumers’ Price Index (CPI). This is essentially the average price of goods and services purchased by a typical NZ household. Currently, the CPI is 6.9%, meaning the average increase in the price of goods and services is 6.9% higher than it was at the same time last year.

Here’s a breakdown of the most significant increases:

  • Housing and household utilities increased 8.6%

  • Transport increased 14% (mostly due to a 32% increase in petrol)

  • Food prices were up 6.7% - the highest increases were vegetables, up 24%, and ready-to-eat food up 5.6%

Unfortunately, inflation affects low-income households the most, with everyday costs of food, housing, and transport already eating up a large portion of their budget.

What’s driving inflation in NZ right now?

Inflation starts with an imbalance in supply and demand. When the demand for goods exceeds the capacity to supply those goods, suppliers have to work harder to meet demand.

So what’s affecting supply and demand right now?

Mark Smith, senior economist at ASB, said “It’s a perfect storm of price increases and capacity and demand contributing to why prices are going up - and it’s not just New Zealand, it’s globally.”

Covid continues to cause supply chain disruptions, limiting supply. Consumer demand has increased due to saving money during lockdowns and not being able to spend on travel. Low unemployment increases demand as more people have more cash to purchase goods.

Russia’s war on Ukraine causes a shortage of oil, so prices increase with a flow-on effect. Consider this: Shipping a 20-foot container from Shanghai to New Zealand cost about US$500 before the pandemic. In September 2021, it cost US$5,000.

Rising costs are passed on to consumers. And right now, prices are rising faster than incomes, which is why you feel the stress of spending more on your groceries.

What can we all do in the short term?

Cost of living is a real issue affecting all of us and it isn’t going away soon. The world isn’t going to go back to normal overnight. Some experts say that we will see inflation go up to 7.4%.

Here are 4 steps to help you manage your finances during inflation.

  1. Budget. If you haven’t made a budget, there’s no better time than now. Assess your spending and find things you can cut out, like subscriptions you hardly ever use.

  2. Save. Shop for groceries online so you can easily compare prices and get the best deals (check out this story about a Kiwi woman who set a food budget of $1000 a year - and then gave up going to the supermarket!). Eat seasonal produce to get the most bang for your buck. Create an emergency fund to give yourself a safety net. Check out 22 savings hacks for 2022 for more ideas of simple ways to save.

  3. Pay off debts. And don’t take on more! If you’re paying off a credit card or loan, do it as fast as you can to get rid of interest payments. Check out inspirational stories of how others have managed to do it.

  4. Get advice. A financial adviser can do you a world of good. They’ll take an unbiased look at your personal situation and help you manage your money. On average, people who seek financial advice have higher returns and higher KiwiSaver balances.

Tightening the purse strings now is necessary to get by day-to-day. But what does this mean for your future?

How to inflation-proof your future

BetterSaver’s founder Joe Taylor recently talked to Newstalk ZB and NewsHub about a scary statistic. Kiwis in their 30s could run out of their KiwiSaver cash less than four years after retiring.

Specifically, a 35-year-old Kiwi earning the national average wage could have enough retirement savings, factoring in inflation, to last just three years and seven months.

At 65, the KiwiSaver member would have around $468,000, equivalent to approximately $264,000 today. A few hundred thousand dollars might seem like a lot, but it won’t be nearly enough to retire within a few decades.

Want to see how long your KiwiSaver could last you? Check out our handy calculator.

So what can you do? The answer is pretty simple - find a better KiwiSaver fund. Make sure you are getting the most out of what KiwiSaver has to offer so you can retire worry-free. The fund you are in and how much you contribute can mean the difference between a comfortable retirement or working for the rest of your life.

Get on track to a better financial future in five minutes with our Fund Finder quiz. No one makes it easier than us to sort your KiwiSaver.