An independent economist has warned Cyclone Gabrielle will be an “inflationary event” which will hit Kiwis hard in the back pocket.
It was announced in January that New Zealand’s annual consumer price index (CPI) remained steady in the December quarter at 7.2 percent.
But Infometrics principal economist Brad Olsen warned inflation is likely to stay higher for longer following the cyclone.
“What we’re looking likely to see is not only inflation staying higher for longer but possibly inflation popping even higher in the near term given those disruptions,” Olsen told AM Early host Oriini Kaipara.
“The long and the short of it is that we’re not expecting to see cheaper prices for many important goods any time soon.
“Rents are also likely to be higher, given again that supply and demand imbalance with lots of homes wrecked, but lots of people needing somewhere to live.”
Olsen said it was originally thought the cyclone would only be a temporary hit on inflation, but warned it’s likely to have a longer-term effect.
“When we look at construction, we know that construction inflation has been starting to decelerate a bit, but that’s likely to have even more pressure put on it,” Olsen told AM Early on Monday
“The likes of fresh fruit and vegetables, again, at an elevated level given just how much supply we’ve lost.
“Transport and logistics also getting more expensive as we pay more to get stuff across the eastern region at a time when infrastructure is severely damaged.”
With the cyclone causing so much damage around the North Island, Olsen said it’ll be “extremely difficult” to put a figure on how much it will cost but warned it’ll hit the country’s coffers hard.
“What we do know for now is that it is going to be a massive cost. We’re talking well into the billions,” he said.
Businesses will also be affected with Olsen saying they’ll face major challenges to operate because of logistics.
“There’s a real challenge for a number of businesses whose operations have often been utterly overwhelmed,” he said.
“Workers might not be able to get to the place of work. So there’s going to be cash flow issues right here and now and over the next few weeks.”
He also said food prices are likely to rise further following the cyclone. The latest food price index released in January showed prices increased by 11.3 percent, which was the biggest increase in more than three decades.
“We’re expecting to see further rises, particularly across the likes of fresh produce, fruits and vegetables, which are the major concern.”
He said another issue of concern is “where are we going to find the resources to try and rebuild?”
“It’s not like there are a huge number of builders, plumbers, engineers and similar who are just sitting idle across the economy and it means that we’re going to have to make some very difficult but important prioritisation decisions, both at a central government level but also across the private sector to make sure that we get resources into the region quickly to recover,” Olsen said.
Watch the full interview with Brad Olsen above.
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