Sunday 16 June 2013

Another benefit of greater competition

By way of context and intro, "non-tradables" are things which don't face any real competition from imports. The cost of a hairdresser or a vet, school fees, the local authority rates, electricity prices, and the cost of many government services, are all non-tradables.

So: from the Reserve Bank's June 13 Monetary Policy Statement (p4):

"Non-tradables inflation has also been softer than anticipated. For the most part, this is a result of increased competition among providers of mobile and broadband services, which has resulted in significant declines in the communications component of the CPI [the Consumer Price Index]".

I dug out the actual numbers. In the year to March '11 the prices of what Statistics New Zealand calls 'telecommunications services' were almost unchanged (down by a tiny -0.1%), but in the year to March '12 they dropped by a substantial -7.7%, and in the year to March '13 they dropped by a further -7.2%.

It's not always possible to put a finger on the precise benefits from businesses having to compete harder for your custom with their own networks and infrastructure. In this single sector, increased competition has had a pay-off large enough to affect the national cost of living.

And it makes you wonder what the pay-off would be from a step change in the level of competition in other important but relatively sheltered sectors, notably education and health.

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