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Missing benefits of the high dollar

Published in Insights, The New Zealand Initiative’s newsletter, 8 February 2013

As the New Zealand dollar reached an all-time high against the British pound and keeps rising against the US dollar, the euro and other major currencies, New Zealand manufacturers are renewing their complaints about the damaging effects of our strong currency.

However, currency movements usually produce losers and winners. Just as domestic exporters suffer from a rising kiwi dollar, domestic importers benefit from increased international purchasing power.

Unfortunately, the decline in prices of imported goods is not being passed on to consumers in a range of product categories:

  • A paperback copy of Rod Stewart’s autobiography costs $29.99 at Whitcoulls and £5.99 ($11.19) at Amazon.co.uk.
  • A new Mercedes E-class sedan costs at least $109,900 in New Zealand (excluding on-road costs); the on-road price for the same E250 CDI model is £36,590 ($68,420) in Britain.
  • Shoe Connection in New Zealand sells Timberland 7 Eye Chukka boots for $229.99 a pair. The same shoes are available from Amazon.com at US$89.95 ($106.79).
  • Yamaha’s new PSR-S950 keyboard will set you back $3,995 in New Zealand, but it is available from German online music stores for €1,935 ($3,101).

An obvious objection to such price comparisons is New Zealand’s remote geography. But many international online retailers do offer free shipping to New Zealand, so the costs of moving goods from the other side of the world to New Zealand cannot be that high. In any case, even after factoring in shipping costs, and customs and biosecurity duties, importing is still cheaper than buying the same goods in New Zealand.

It is hard to make sense of these price differentials. Of course, domestic retail prices are sticky and do not float in sync with fluctuations in the exchange rate. Then again, the strength of the kiwi dollar is not a new phenomenon so prices should have adjusted over time.

A couple of years ago, I co-authored a study on Australia’s high retail prices, blaming government intervention for a large part of the difference. Perhaps we should start a similar research project for New Zealand.

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