The Squeezed Margin: Q2 Building Costs and the Looming CPI Realities

Construction output costs are tracking upward, but residential builders are absorbing the financial hit. This week on the New Zealand Property Market Podcast, Head of Research Nick Goodall and Chief Economist Kelvin Davidson analyse the newly released Q2 Cordell Construction Cost Index (CCCI). 

The data shows an annualised cost acceleration to 3.5% for the second quarter, up from 3.0% in Q1. We break down the structural reasons why these rising input costs - driven by steel and fuel surcharges - are not being passed on to consumers, as flat residential values and high existing listing volumes force builders to sacrifice their margins.

The guys also preview the critical Q2 CPI inflation drop. Backed by the latest June Selected Price Indexes (SPI) data, which covers roughly 45% of the consumer basket, major trading bank economists have upgraded their near-term inflation projections to between 3.9% and 4.1%. 

We discuss what this means for the Reserve Bank’s targeted return to neutrality and why the upcoming September 2nd Official Cash Rate decision remains firmly aligned for another baseline increase.

Finally, we explore the highly volatile net migration metrics, detailing the staggering 23% downward revision to April’s population data, and look at the sharp 1.4% drop in June electronic card spending that signals ongoing consumer caution.

This week we discuss:

• The Q2 CCCI Acceleration: Why construction output costs rose to 3.5% annually and why the long-term sector average remains well below the post-COVID peak.
• The Margin Squeeze: How high volumes of competing existing housing stock prevent builders from passing input inflation through to consumers.
• The Selected Price Indexes: Analysing the mixed signals from June's fuel and food metrics ahead of tomorrow’s official CPI release.
• The 3.9% Inflation Floor: Why the RBNZ adjusted its baseline inflation forecast down from 4.2% at the recent Monetary Policy Review.
• Population Revisions: The macro implications of Stats New Zealand erasing 5,000 people from April’s net migration figures.
• The Sports Wrap: Spain’s football World Cup victory, Ryan Fox’s historic Open Championship win, and the All Blacks’ dominant performance against Ireland.

Sign up for news and insights or contact on LinkedIn, X @NickGoodall_CL or @KDavidson_CL and email ngoodall@cotality.com or kdavidson@cotality.com

This podcast is for educational and entertainment purposes only and does not constitute financial, legal, or tax advice. The hosts are not licensed Financial Advice Providers in New Zealand. All information is of a general nature and does not take into account your personal situation or goals. Please consult a qualified professional before making any financial decisions.