Price rises expected

The price of oil is forecast to increase this year meaning we can expect an increase in the price of goods imported from New Zealand.
This is because a rise in the price of oil means an increase in the cost of transport and importers recover this cost by passing it on to the consumer.
Government’s Half Year Fiscal and Economic Update issued on 31 December 2010,(Section 1.2 Consumer Price Index, P8) states;
“Despite limited growth in prices in the Cook Islands, the economy is heavily reliant on imports from New Zealand and therefore the trend in price rises is expected to trend towards that of the New Zealand economy with a lag of at least 2 -3 months before impacting prices in the Cook Islands. Inflation in New Zealand is expected to edge higher in 2011 and 2012 combined with the expectation that world oil prices will rise by as much as 3.75% into the next year.”
According to the report, price rises remain subdued through September quarter data for 2010, growing at 0.25% in comparison to the same period in 2009 placing annual average inflation to September at 1.15%.
The major groups keeping price rises minimal are the downward trend in home operation prices with fuel and light (utilities) remaining constant over the last three quarters to September, slight decreases in furnishings and household services, a 2.0% fall in rental and mortgage prices, and a 4.4% fall in the price of motor vehicles.
In the Pre-election Economic and Fiscal Update (PEEFU) it was reported that movements in CPI on a fiscal year basis had increased by 1.8% by year end June 2010, approximately 0.5 percentage points higher than the estimates projected at the time of the Budget Estimates 2010-11.
Looking ahead then, with all assumptions holding, growth in the CPI is projected to be consistent with original projections published in the PEEFU. Meaning, growth in 2010-11 is expected to be slight continuing at 1.8%, and to moderately increase to 2.6% in 2011-12 and 2.8% in 2012-13 reflecting price pressures driven by forecasted oil price rises.
When the prices of goods in the shops increase, those on fixed incomes will find it harder to make their money go further.
Those in the outer islands where the cost of goods is already 20-30 per cent higher than on Rarotonga, because of transport costs, will feel the effects more.

By Charles Pitt

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