Canny View: The silent thief taking your hard earned money

OPINION

Inflation will always drive-up prices, though the pace at which it impacts our wallets has been particularly rapacious recently.

Think of inflation as the silent thief. It’s the rate of prices increasing in an
economy over time – or, how much your money today will be able to buy in the future. This difference between the buying power of $20 in your pocket today and $20 in a year’s time can be different. The rate of inflation is how we measure exactly how much buying power we’re losing.

So, while the thief isn’t physically reaching into your pocket and yanking that $20 out, they’re still making it difficult for you to buy the same goods or services for the same amount of money. The higher inflation is, the quicker your hard-earned money loses its buying power.

And it’s everywhere: The supermarket, the fuel pump … even if you stay at home, you’re not safe. Just this week, Hawke’s Bay Regional Council proposed a rate increase of 54 per cent over the next three years (19.6 per cent this year alone).

Napier City Council’s proposal sees some residents’ rates literally doubling.

Insurance costs continue to bite with increases with regional increases of between 23 and 30 per cent.

And yes, there is Gabrielle’s lingering aftermath to consider. Things need to be funded in the region, and the money needs to come from somewhere. But what often makes price hikes feel worse in New Zealand is the monopolistic model of many providers.

Another local example – Unison line charges. The Hawke’s Bay residential pricing effective from April 1, 2024, shows daily charge increases of between 6.25 per cent and 33 per cent. Unison is the energy lines company in Hastings, Napier, the broader Hawke’s Bay and even Taupō and Rotorua. There’s no opportunity for shopping around, and these new line charges will make a significant impact on any Hawke’s Bay resident’s overall electricity bill.

Even the well-heeled frequent traveller will pay more for Koru membership, with the price soaring by up to 20 per cent.

The lack of competition and subsequent uncontested control of many providers and goods suppliers in New Zealand is pushing prices beyond the excuse of inflation.

Add to that the fact that we’re still recovering in multiple regions from multiple ”once in a lifetime” events, and that consecutive Governments have essentially been using No. 8 wire to string together the country’s dilapidated infrastructure …

It’s not a pretty picture, and I think a lot of eyes will be on various budgets and proposals this year as councils (and even the Government) try to find real solutions to the problems inflation, poor planning and global external factors have caused.

There are few magic tricks, and fiscal white rabbits are scarce at this time on God’s Own. Some solutions appear to be short-sighted such as the recent removal of tax depreciation on non-residential buildings which has been a contentious issue, akin to a magician’s sleight of hand. It is forecast to raise the government $525m per year. While the magic trick adds to the government coffers, the disappearing depreciation casts a long shadow on productivity and investment.

Inflation steals from more than just your day-to-day bank balance. Your investment returns are on the hook as well. The solution for this is the same one we should encourage to keep commercial entities from price gouging: Diversification. With investment, this means across industries, asset types, and countries.

I have seen many fall for the appeal of a nice big term deposit rate number. It’s a nice idea, putting your money into a term deposit scheme for a year, or several years for the bigger prize, and getting back the interest.

But… this puts you again at the mercy of inflation, as you are betting the small growth of your term deposit will outpace it. After tax, fees, and inflation, any returns are usually minimal – if not negative.

You could instead be putting it to work in a long-term financial plan. Even without going down the tried-and-true route of a globally diversified portfolio, increasing your KiwiSaver contributions or investing in a tax-efficient PIE scheme is going to do more for you in the long run than a term deposit ever will.

If you’re seeking a second opinion on your financial plan or would like some help deciding where to start, sitting down with a trusted financial planner is a great first step to discovering the best way forward for your unique situation and goals.

Much like our politicians, councillors, and regulators; investors must shift to think of the big picture years down the track.

·Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 349.

The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz