New Zealand’s currency’s slump against the US dollar is not just bad news for online shoppers and travellers – it could have an effect on the price of a number of items for sale in this country.
The value of the NZ dollar against the US has fallen sharply since August.
It was at US55c on Wednesday, down from a peak of nearly US72c in November last year.
Economist Gareth Kiernan, of Infometrics, said that could have a wide effect.
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He said it was not the first time that a falling New Zealand dollar had pushed up prices in this country. There had been a noticeable effect around the turn of the century, too, he said.
The dollar dropped 28% against the US between May 1999 and November 2000 but then rebounded 65% between December 2001 and February 2004.
Tradeable inflation – price increases of goods that can be bought and sold internationally – hit 4.7% a year in June 2001 and dropped as low as -2.3% in March 2004.
Kiernan said the price movements of that period could give some insight into what might lie ahead this time.
Here are five things that could be affected by the comparative weakness of the NZ dollar.
Kiernan said fruit prices rose 15.2% in the year to June 2001 and then fell 8.1% in the year to March 2004.
Meat and poultry went up 11.4% and then fell 3.3%. Milk, cheese and eggs prices were up 6.9% and then down 2.6%. Fish and seafood went up 7.3% and then down 1.3%.
“These price movements reflect that we tend to pay the world price for food, so if the exchange rate has fallen, that world price becomes more expensive in NZ dollars. Additionally, key inputs into the production process for farmers, such as fuel and fertiliser, will also have become more expensive.”
The category called “other vehicle fuels and lubricants”, which includes diesel, increased in price 9.9% in the year to June 2001, then fell 6.7% in the year to March 2004.
Petrol, which has a higher tax and excise component, rose 9.5% and then fell 0.3%.
“I’m sure these two don’t need any explanation given crude oil is generally priced in US dollars,” Kiernan said.
Motorcycle prices rose 6.5% and then fell 8.3%, and used car prices rose 4.6% and then fell 8.3%.
“Vehicle prices will be dependent on where they are being imported from, so the fact that the current exchange rate story is one of US strength rather than more broad-based NZ weakness means that the effect on vehicle prices could be more limited than if we were weaker against the yen or euro,” he said.
“It’s also worth noting that the exchange rate movements were more likely to be passed on for more discretionary purchases (motorcycles) than in the new car market, where the vehicle companies are more likely to try and hold their pricing.”
Prices for electrical appliances for personal care rose 6.3% in the year to June 2001 and fell 7.4% in the year to March 2004.
Kiernan said this was representative of what he would expect to see with other electronics, which were all produced overseas and so were highly influenced by exchange rate movements.
Prices for furniture and furnishings rose 6.1% in the year to June 2001 and fell 1.9% in the year to March 2004. Prices for carpets and other floor coverings rose 4.8% and then rose a smaller 0.2% in the year to March 2004.
Kiernan said that suggested they were less influenced by exchange rate movements, but that there was a big enough imported component to affect prices.
Household textiles rose 7.6% and then fell 1.2%, while major tools and equipment for the house and garden rose 4.3% and then fell 2.1%.
“The bulk of these products will be imported and so will be at the mercy of the exchange rate, and the limited domestic production that takes place will also be affected by higher costs where they are reliant on imported inputs.”
Kiernan said other sporting equipment could be pushed up in price.
“Major recreational and cultural equipment” prices rose 4.3% in the year to June 2001 and fell 2.1% in the year to March 2004.
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