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At a glance:
- Annual inflation in March 2.2%, quarterly inflation 1%
- Strength of inflation surprises everyone
- Food, energy and tobacco prices account for most of the rise in March quarter
- Act NZ warns mortgage rates will follow inflation higher
``There is still only modest evidence of this occurring at this stage, although the latest equal pay ruling should add some impetus.''
With the impact of food and petrol price rises likely to be temporary, and questions surrounding the global inflationary backdrop, it was not guaranteed headline inflation would remain at current levels for a sustained period.
Statistics New Zealand released its Consumer Price Index, the official measure of inflation, yesterday. It showed food, tobacco, housing and transport made the key contributions to rising inflation in the March quarter.
Inflation in the quarter rose 1%, ahead of the Reserve Bank's forecast of 0.4% and the market expectations of 0.8%. The March quarter inflation rise was the largest since June 2011.
The annual inflation rate of 2.2% was ahead of the Reserve Bank's forecast of 1.5% and market expectations of 2%, which is the mid-point of the Reserve Bank's target range.
ASB senior economist Jane Turner said the lift in tobacco prices reflected the annual increase in tobacco taxes to discourage smoking.
However, food prices were ``unusually high'' in the quarter.
Statistics NZ highlighted higher prices for apples and milk, both of which were benefiting from strong export demand, might be leading to higher prices locally.
``We expect food prices will remain elevated over coming months due to poor weather affecting crops.''
The Reserve Bank would look through higher food prices to the extent they were driven by one-off events, and to a lesser extent if they reflected stronger export demand, she said.
Household contents and health price movements were higher than expected. Health prices lifted as a result of higher prices for pharmaceuticals.
Airfares were another source of surprise, following stronger-than-expected increases in domestic fares, probably reflecting strong demand as a result of high tourist numbers, and a smaller seasonal fall in international fares.
On housing, rents were slightly higher than expected. The North Island, excluding Auckland, provided the strongest lift.
The lift was likely to be stemming from Wellington which had recently become supply constrained due to strong population growth, Ms Turner said.
Act New Zealand leader David Seymour continued his concerted criticism of National, the party which stood aside for him in Epsom so he could become an MP.
``The National Party frequently offers low interest rates as evidence for their claim that housing is still affordable in New Zealand, but today's inflation figures show that the mirage is disappearing.
``Inflation is rising and mortgage rates will follow. This will hit recent home buyers as well as putting a first home further out of reach for young New Zealanders.''
National had allowed the housing shortage to escalate, and house prices to run out of control, he said.