Food prices are expected to play a large role in higher
inflation. Photo by Peter McIntosh.
Higher food, petrol and tobacco prices will have pushed
headline inflation up in the three months ended March but the
Reserve Bank is unlikely to be too worried by the result.
Economists are picking inflation to have risen to between
4.6% and 4.9%, well above the central bank's policy target
agreement of between 1% and 3%.
Statistics New Zealand will this morning release the consumer
price index (CPI), the official measure of inflation.
Westpac senior economist Dominick Stephens said the main
cause of the higher living cost in the March quarter was a
familiar suspect - fuel.
Petrol prices at the pump were 9.4% higher in the March
quarter, compared to the three months ended December.
Last October's GST increase from 12.5% to 15% would have a
lingering effect on quarterly inflation. Some firms that
refrained from immediately passing on the GST hike might have
done it between January and March this year, he said.
"More importantly, some prices will only register the GST
increase at the time of their annual reset. For example, the
annual increase in university fees occurred in the March
quarter and is recorded in the CPI at that time."
This year, fees rose by more than 6% as the higher rate of
GST was applied, Mr Stephens said.
ASB chief economist Nick Tuffley said he expected higher
food, petrol and tobacco prices to be the key drivers behind
an expected 1.2% increase in the CPI in the quarter.
Higher food and fuel prices were likely to remain the key
inflation themes over the remainder of 2011, given the
continued increase in global commodity prices.
Inflation indicators in the latest business confidence
surveys pointed to inflation pressure in the New Zealand
economy being contained for now. However, Mr Tuffley expected
inflation pressures to re-emerge next year as the improvement
in demand allowed businesses to pass on rising costs.
Added to that, rebuilding activity next year was likely to
place capacity pressures on the building sector and lead to
acceleration in construction costs.
"The Reserve Bank is relying on some very weak inflation
outcomes over the coming years to get annual CPI back to
within its target band. We expect the Reserve Bank to become
less sanguine about inflation next year as a lift in
underlying inflation becomes apparent," he said.
Mr Stephens said 4.8% inflation might sound high but it would
not necessarily faze the Reserve Bank.
The central bank still believed that inflation would settle
comfortably in the middle of its target band during 2012.
That view was unlikely to be altered by the March quarter