The big fall in New Zealand’s annual inflation rate from 4.7 to 4 per cent is attributed to sticky pricing for non-tradeable goods and services, with housing and household utilities being major contributors. The phenomenon of ‘Swiftflation’, linked to Taylor Swift’s concerts, has caused short-term inflationary spikes, prompting BNZ to urge the Reserve Bank to overlook this one-off issue. While some economists believe the RBNZ may cut rates before the end of the year, others suggest waiting until early 2025 for a cut, emphasizing the need for sustained evidence of falling inflation measures to below 3 per cent.
Exploring the Swiftflation Effect
So, you’ve probably heard about the recent drop in New Zealand’s inflation rate, right? From 4.7 to 4 per cent, it seems like a win for consumers. But hold up, before you start celebrating, there’s a twist in the tale – and it involves none other than the pop sensation Taylor Swift. Yes, you read that right. Economists are talking about something called the Swiftflation effect, and it’s causing quite a stir.
Unpacking the Numbers
Let’s break down the numbers first. The consumer price index in New Zealand saw a 4 per cent increase in the 12 months leading up to the March 2024 quarter. Sounds pretty standard, right? Well, not quite. The devil is in the details. While tradeables inflation fell to 1.6 per cent, non-tradeables inflation stubbornly remained at 5.8 per cent. What does this mean? It means that prices for goods and services not influenced by foreign competition are still on the rise, indicating strong domestic demand.
The Taylor Swift Factor
Now, here’s where things get interesting – the Taylor Swift factor. It turns out that the recent surge in prices for international accommodation can be partly attributed to the ‘Swifties,’ fans of Taylor Swift who flocked to her concerts in Australia. As Swift tours around the world, accommodation costs spike, giving rise to what economists are calling Swiftflation. While it may seem like a fun and quirky phenomenon, it does have implications for short-term inflationary spikes that need to be considered.
Shake It Off: RBNZ’s Response
So, should the Reserve Bank of New Zealand (RBNZ) be worried about Swiftflation? Not according to BNZ’s head of research Stephen Toplis. He suggests that the RBNZ should “shake it off” as the Taylor Swift effect is a one-off issue that can be overlooked. While some factors like tobacco taxes and insurance rates continue to drive non-tradeables inflation, they are largely unaffected by monetary policy.
While the recent drop in inflation may seem like a win on the surface, the underlying factors, such as the persistence of non-tradeables inflation and the quirky influence of Swiftflation, paint a more complex picture. As economists and central banks navigate these challenges, it’s clear that the world of economics can be just as unpredictable and entertaining as a Taylor Swift concert.
