Inflation expected to come in at 13-year high

Electricity prices are likely to contribute to higher inflation. Photo by Stephen Jaquiery.
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 quarter.

''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 statements.''

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 increase.

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 Tuffley said.

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 plans.

''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 quarter
• Food and energy prices main contributors
• Electricity price rises took effect on April 1
• Food prices rose 0.9% in June quarter

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