WELLINGTON: The worst flooding in New Zealand’s biggest city Auckland is heaping more inflationary pressure and is posing a fresh cost-of-living headache for prime minister Chris Hipkins, who is trying to win back support for his party ahead of elections this year.
Hipkins, who replaced Jacinda Ardern as prime minister and leader of the Labour Party last month amid a backlash over COVID-19 restrictions, rising cost of living and a worsening housing crisis, has his work cut out, analysts and political observers say.
The intense cost-of-living pressures will be a hot-button issue going into the Oct 14 election, they say, with annual inflation already running at near three-decade highs of 7.2 per cent.
“Following the floods a lot of prices will be going up left, right and centre. It was the perfect storm and for the government that we have, they are really up against it in terms of the economic questions and the cost of living,” said Grant Duncan, a professor at Massey University.
“Inflation is going to be very important in the next election,” he said.
Although monetary policy implications are likely to be limited, the floods are “yet another unhelpful inflationary shock,” ANZ said in a note, with many observers warning it will take several months to recover from the significant damage to thousands of houses, roads and vegetable crops.
The central bank has already raised interest rates by 400 basis points since October 2021 in its most aggressive tightening since the cash rate was introduced in 1999, and analysts expect it will treat the floods as a one-off event. Policy rates are still expected to be raised by 50 basis points to 4.75 per cent at the next meeting on Feb 22.
Food prices were up at more than a three-decade high of 11.3 per cent in December year-on-year, and the flooding in Auckland and much of the upper North Island will add to the overall costs for a range of consumer items from cars to couches and onions, analysts say.
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