Inflation is a term used to describe a rise in average prices. Inflation also means that the value of money, known as purchasing power, subsequently drops as a result of inflation. With the rises in inflation in the third quarter, New Zealand saw the Consumer Price Index rise to 4.9%. ASB’s team has reported a few factors that are driving higher inflationary pressures. Most of the lift in inflation over the past 12 months have been internationally sourced. Recovering global economic demand has also increased commodity prices. In contrast, disruptions within the worldwide supply chain have caused cost-push inflation. The Reserve Bank has stated that there isn’t much they can do about international and globally sourced inflation but will continue to monitor and react to the impact on New Zealand wages and price-setting behaviours.
Increasing inflationary pressure is causing some central banks to start reducing the amount of support they would give by usually lowering interest rates to stimulate the economy. Others are assessing these trends as largely transitory and maintaining current levels of support. This may have some effect on homeowners and the increase in loan rates to come.
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How does this affect my KiwiSaver account?
As a KiwiSaver first home buyer, this may have some effect on your decision to purchase as well.
ANZ has increased its one-year “Special” home loan rate for borrowers with over 20% equity to 3.34% and adjusted its two-year fixed rate to 3.99%. In March 2020, these rates were 3.05% and 3.35%, respectively. This rise could prompt first-home buyers to delay their purchasing plans. With Covid-19 still prevalent as of November 2021, borrowing activity may slow until interest rates decrease or inflation eases. As shown in the graph below, borrowers with higher exposure to market fluctuations may be more vulnerable to these changes.
Cost-push inflation has significantly driven up interest rates for first-home buyers. Even if the Reserve Bank takes steps to curb inflation, it will take time for any noticeable impact. The market has remained resilient throughout the lockdowns of 2020 and 2021, suggesting that Covid-19 or its variants are unlikely to have a major effect on inflationary trends in the coming months.
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Who is being affected the most?
With rising costs, everyone will be affected differently. The most affected by these changes are people with lower incomes and renters, who do not gain from soaring house prices. For those looking into buying their first home, take your time to assess whether now is the right time for you. Talk with your trusted financial adviser to see what to do and how to plan for the coming months, or reach out to National Capital.
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