Friday 5 May 2017

Tobacco tax, CPI, and living costs at the bottom

Stats NZ has been putting together new price indices that track the prices of the bundles of goods commonly bought by people in different income and expenditure cohorts: Household Living-Costs Price Indexes. The basic method and background's here. 

The latest release found that higher cigarette and tobacco costs are hitting beneficiary households. The Stats NZ release makes it pretty obvious.
Beneficiaries experienced the highest inflation in the March 2017 quarter, Stats NZ said today. Their overall costs rose 1.4 percent, almost three times the rate of inflation experienced by the biggest spenders group (up 0.5 percent).

"Higher costs for cigarettes and tobacco had a greater effect on beneficiaries. About 5 percent of their spending went up in smoke, proportionally more than most other types of households spent," consumer prices acting manager Nicola Growden said.

Higher rents, which make up one-third of their total spending, also had a greater effect on beneficiaries.
Government's been hiking tobacco taxes. That it would be highly regressive is no surprise. Government restrictions on new building drive housing affordability problems too. Government transfers a lot of money to the poor, but also makes things pretty expensive for that cohort.

I rather like the chart we had in Jenesa's report, Health of the State.

Update: Reader mailbag brings me this rather nice chart from the Stats release. Happy coincidence as the email came in two minutes prior to this morning's 7am queued post.

Informed Reader's conclusion was similar to mine:
The most interesting are beneficiaries. The reason they have higher inflation is:
  • Cigarettes and tobacco that is mostly because of the tax regime
  • Rents whose cost is mostly covered by accommodation supplement and Temporary Additional Support (despite the name it is generally not temporary)
  • Energy that is high because of the policy to subsidise aluminium smelting.
Most of the real difference is down to government. This makes sense if you think about the economics. People with a tighter budget constraint are going to be more price inelastic, so the only place you would see prices rise more for the poor are where prices are not determined by a market.
 Income quintile 1 is more complicated, not least because it includes many people who have income that statistics New Zealand surveys don’t pick up e.g. people starting a business who have “no income”. If you look at Bryan Perry’s work on incomes, you will find he explicitly warns against using lowest decile data. But even here, if you take out the ones for beneficiaries, you are left with property rates from local government and interest which you could reasonably suspect is being paid by those who lenders are prepared to lend money to (e.g. people starting a business who have “no income”...)

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