Electricity prices are likely to contribute to higher
inflation. Photo by Stephen Jaquiery.
Inflation is forecast to have reached a 13-year high in
the three months ended June, with food and electricity prices
being the main contributors in the quarter.
Westpac senior economist Michael Gordon said Wednesday's
consumer price index (CPI) inflation figures would be the
last major data released before the July 24 official cash
rate review by the Reserve Bank.
Westpac has forecast inflation for the June quarter to come
in at 1.8%, up from 1.5% in March, still below the Reserve
Bank's 2% mid-point of between 1% and 3%.
The last time inflation was 1.8% was in the December 2001
''Our sense is the Reserve Bank intends to get at least one
more OCR hike under its belt before assessing the impact of
the hikes to date. But any surprises in the inflation figures
could have a bearing on the tone of the Reserve Bank's
A softer than expected outcome might see the Reserve Bank
signal an extended pause while a stronger result could raise
concerns about the Reserve Bank falling behind, he said.
ASB chief economist Nick Tuffley believes inflation will be
1.9% for the June quarter but agrees higher food and
electricity prices will be the main contributor to the
The monthly food price index indicated food prices increased
0.9% during the quarter, driven by higher fruit and vegetable
prices. The price of restaurant food and takeaways was also
increasing, reflecting increased labour costs.
The increase in fruit and vegetable prices was largely
seasonal and the recent fall in global commodity prices would
flow through to lower grocery prices at the retail level
during the rest of the year.
Higher energy prices were likely to be another key
contributor, given a raft of power companies announced price
increases taking effect from the beginning of April, Mr
Mr Gordon said the wild card for the quarter was
telecommunications. During the quarter, major internet
service providers started to offer uncapped data plans for
the first time.
The move was welcome and overdue but there was no sense of
how it would be treated in terms of ''price per unit'', which
was straightforward to calculate for capped data plans.
The effect on the CPI would depend on the uptake of the new
''The rise in the annual inflation rate is largely down to
two factors. The first is the slightly larger than usual
[rise] in food prices, compared to a smaller than usual
increase in the June quarter last year.''
The second was petrol prices being largely unchanged on
average in the quarter, he said.
At a glance
• Inflation to reach 1.8% of 1.9% in June
• Food and energy prices main contributors
• Electricity price rises took effect on April
• Food prices rose 0.9% in June quarter